There are certain key legal documents that provide the foundation for your startup's operations, relationships with stakeholders, and risk management strategies. In this article, we will briefly outline some of those legal documents.
Constitution
For startups incorporating as a company, a constitution sets out the rules and regulations governing the internal management and operation of the company (e.g. shareholders' rights, directors' powers and responsibilities, meetings, share issuance, classes of shares and decision-making processes).
Shareholder Agreement
A shareholder agreement governs the relationship between shareholders and sets out how the affairs of your startup will be conducted. It addresses key aspects such as, voting rights, director appointments, dividend distribution, dispute resolution mechanisms, share issues and transfers and restraints of trade (or ‘non-competes’).
Terms of Use and Privacy Policy
Startups offering products or services to customers will need well-drafted terms of service/use and a privacy policy.
Terms of service/use – outlines the contractual relationship between your startup and your customers, covering, e.g., payment terms, delivery, warranties, and limitations of liability.
Privacy policy – explains how customer data is collected, stored, and used, ensuring compliance with privacy laws.
Employment Contracts
Employment contracts help to establish clear expectations and protect the rights of both your startup and your employees. Employment contracts define the terms and conditions of employment (e.g. job description and duties, remuneration, working hours, leave entitlements, confidentiality, and termination).
Employee Share Option Plan (ESOP)
An ESOP allows eligible personnel, including employees, contractors or directors, to acquire shares in a company at a predetermined price over a specified period. ESOPs serve as a valuable tool for attracting and retaining talented employees, aligning their interests with the company's success.
When implementing an ESOP, there are various legal and tax considerations (e.g. determining the eligibility criteria for participants, setting vesting periods, establishing the valuation, and adhering to reporting and disclosure obligations).
Investment Round Documents
If your startup is seeking external funding, there are three main types of investment documents for consideration:
Simple Agreement for Future Equity (SAFE) – a popular agreement for early-stage funding rounds, offering a straightforward way for investors to provide capital in exchange for the right to obtain equity in the company at a future financing event (e.g. at the next investment round);
Convertible Note Agreement – an agreement allowing investors to lend money to the company, which either converts into equity at a later financing event or is repaid; and
Share Subscription Agreements – a formal agreement between the company and investors, detailing the terms and conditions of share issuance (e.g. the number of shares and price per share), together with accompanying rights, obligations and warranties.
Non-Disclosure Agreement (NDA)
Startups will often need to share sensitive information with third parties (e.g. advisors, potential customers and partners). An NDA ensures that confidential information (e.g. proprietary information and intellectual property) remains protected and prohibits its unauthorised use or disclosure.
Intellectual Property Agreements
Startups rely on their intellectual property (IP) and / or licensed third-party IP. Well-drafted agreements (e.g. licensing agreements and deeds of assignment of IP) help to clearly define the rights and obligations related to the use, protection, and ownership of IP assets.
Insurance Policies
Insurance policies provide financial protection in case of unforeseen events, accidents, or legal claims. Startups will generally need to consider public liability insurance, professional indemnity insurance, workers' compensation insurance and cyber liability insurance. A specialist insurer or insurance broker can assist in determining the right policies for your startup.
Conclusion
Having a strong set of legal documents in place helps your startup to establish a solid legal framework, protect your interests, define relationships, and ensure compliance with relevant laws and regulations. Drafting and reviewing these documents should always be done with the assistance of an appropriately qualified lawyer, allowing your startup to focus on what it really wants to focus on – growth and success!
If you know which documents you need for your startup, you can efficiently create your own bespoke documents here on StartupGo.