Not every startup company grows to become a giant in the market. Some even fail within the first few weeks or months after establishment. One of the reasons behind that is the lack of a robust legal structure. It’s, therefore, essential to cover your legal bases to enhance the efficiency and smooth running of your startup. You can achieve that by putting all the legal documents in place.
You might think that building legal documents for your startup is a difficult task. But that isn’t always the case. For instance, you can utilize an online legal document template to streamline the process. But the question is, what legal documents does your company need?
To help you, here are seven essential legal documents for your startup:
1. Operating Agreement
If your startup business is a Limited Liability Company (LLC), it’s necessary to build an operating agreement. This document defines the rights, responsibilities, and liabilities of each co-founder member of a startup and the relationship between the co-founders and outlines the dispute resolution procedure if a dispute arises between founders. In simple terms, it stipulates the working coordination of all founders.
You can build an operating agreement by yourself or hire experts. But whichever is the case, the operating agreement created should be comprehensive. In addition, each co-founder should read and sign the document to agree with the content contained therein.
2. Employee Contracts
Indeed, you can start your firm alone without any employees. However, it’ll reach a time when you can’t put everything on your shoulders, thus forcing you to hire a few workers.
The hired employees will assist in running your startup by performing their roles and tasks. Therefore, you must create formal agreements with any employees you add to your organization. To do this, you must produce employee contracts.
Employee contracts will help workers understand what you expect them to do in your organization. It also defines the terms of employment, including responsibilities, compensations, and grounds for job termination. All this helps avoid future disputes with employees. Therefore, avoid hiring applicants without first giving them employee contract documents to read and sign.
3. Non-Disclosure Agreements
As noted earlier, you can start your business alone. However, it might become almost impossible to complete all the tasks alone. For that reason, you’ll consider finding employees and service providers.
While that’s the case, your business may contain sensitive information that shouldn’t be disclosed to outsiders or third parties. So how can you keep your company information safe and secure? The best way of achieving that is by establishing non-disclosure agreements (NDAs). NDAs are legally binding contracts that ensure workers, service providers, and other signing parties can’t share sensitive information without your consent.
4. Shareholders’ Agreement
There are several ways to raise business finance. One of them is issuing shares to the public. Anyone who buys shares from your company becomes an owner to the extent of their shareholding. This requires you to sign a shareholder agreement.
A shareholders’ agreement is also known as a stockholder’s contract. It’s a document that lists the names of all company owners and their shareholding percentages. Additionally, it outlines the rights, privileges, protection, and obligations of every shareholder.
5. Investment Contract
You may want to raise funds for your business by inviting investors. These are individuals or body corporates who commit capital to your company expecting to receive financial gains. However, such engagements will require a legal document—an investment contract.
An investment contract is a legal document with a contractual agreement between your company and investors with the expectation of receiving returns on their investments. In the United States, investment contracts are regulated by The Securities Act of 1933. Some of the vital information an investment contract must include are the structure, length, and purpose of the investment, investment amount, equity share, and return on investment.
6. Company Constitution
A company constitution is another crucial legal document you should prepare once you incorporate your firm. It outlines the rules and regulations on how your company should be governed. It includes your company’s legal name, business location, address, business objectives, shareholders relationship, company assets, capital, and other significant information. Moreover, this is the corporate charter signed by the initial shareholders.
7. Bylaws
Finally, you can consider creating a bylaws document for your startup. The document contains the internal rules and regulations of the firm governing its day-to-day operations. The detailed rules and regulations in the bylaws will help your business run smoothly and efficiently.
Takeaway
As detailed in this article, you require several legal documents for your startup firm. Having them ensures you run a successful business by avoiding future disputes. Therefore, ensure you create comprehensive and transparent legal documents.
