Once you have verified your idea and invested in a pitch deck, your mind will now turn to launching your startup. Below, we set out what five legal documents you can’t launch without.
1. Company Incorporation Documents
You must set up a structure through which you can run your business. We would recommend you seek legal advice on the best way to structure your business as there are various options to consider including cost, administrative, asset protection and limitation of liability. Most startups use a company structure as this is the most attractive to investors. If you do choose this structure, you must incorporate the company and ensure that all of the necessary company documents are in place, including:
- Company certificate of registration;
- Company’s constitution (which sets out the company’s governance); and
- Company records (such as the register of members and the register of directors).
These documents are critical, and you should ensure to keep them in a safe place, generally at the company’s principal place of business.
2. Shareholders Agreement
If your business has more than one shareholder, a Shareholders Agreement is essential. A Shareholders Agreement is an agreement between the company and its shareholders setting out the following:
- The shareholders’ and directors’ rights, responsibilities, obligations and liabilities;
- How decisions are made;
- How disputes are resolved;
- The requirements for issuing new shares;
- The requirements for selling shares; and
- Provisions for exiting the business.
A well-drafted Shareholders Agreement can help prevent disputes in the future.
3. Vesting Agreement
If you issue one or more founders (or employee shareholders) with vesting shares, then you’ll require a Share Vesting Agreement. A Share Vesting Agreement sets out how and when the vesting shareholder will receive its entitlement to the vesting shares, and explains what happens to their shares if they cease to provide services to the company. Startups typically issue vesting shares to incentivise employees to stay with the company. If vesting shareholders cease to provide services to the company before their shares have vested, they will generally have to sell those shares back to the company for their issue price.
4. Intellectual Property Assignment Agreement
Each founder should enter into an Intellectual Property Assignment Agreement. Under this document, the founder assigns all of his or her rights to the intellectual property he or she has created in connection with the business.
This means that the company owns all of the intellectual property required to run the business as opposed to the founders individually. Intellectual property is incredibly valuable, and potential investors will want to know that the company, not the founders, own it. They want assurances that a founder leaving the company won’t take their intellectual property with them.
5. Non-Disclosure Agreement
A Non-Disclosure Agreement prevents the recipient of confidential information from using or disclosing that information to other third parties. When you are negotiating with potential investors, prospective service providers or other third parties, you may want them to sign a Non-Disclosure Agreement before you disclose any confidential information to them. During discussions with investors, you will undoubtedly have to disclose a wide variety of information about the business (including financial information).
Equally, when getting assistance from service providers (e.g., manufacturers who will be assisting in manufacturing your design), you may have to disclose confidential information. You don’t want this information getting into the wrong hands – it could be catastrophic if someone uses that information to compete with you.
There are numerous legal documents which you should have in place before you launch your startup, and many will depend on the nature of your business. We have set out those that all startups require. We understand that legals sometimes fall on the back-burner, however, ensure that you correctly execute these documents before launching.
Questions about launching your startup? Ask our startup lawyers on 1300 544 755.