Starting a company can be intimidating, but it’s also extremely exciting. The intimidation often stems from the unknown, and the unknown creates anxiety . . . how to structure the company, how to contract with clients, how to contract with employees, how to raise capital . . . Finding a great legal partner can help you understand the basic blocking and tackling alleviates that anxiety.
Everyone has to start somewhere, so to start off this blog, let’s level the playing field by beginning with: A company (in any form: LLC, C Corp or S Corp) is itself is a legal entity, created under state law and governed by organizational documents. In addition to the standard documents , there are many different types of legal agreements that should be part of your company to protect you and limit potential liability down the road.
This blog explores the many of the basic agreements that startup founders need to be aware of from day one. The smarter you are about using the law and these agreements to your advantage, the better positioned your company will be for long-term growth and stability.
Here are 8 legal documents that you should know about for your startup:
To form an LLC or corporation, and make it legally official (so that it’s recognized as its own legal entity and provides you liability protection), you must file the appropriate documentation in your state. To form an LLC, you need to file articles of organization. And to form a corporation, you need to file articles of incorporation.
After you officially create your company, you need to establish the terms of its governance. For LLCs, the main governing document is the Operating Agreement; and for corporations, it’s the Bylaws and Shareholders’ agreements. The Operating Agreement and Shareholders’ Agreement lay the groundwork for your company in many important ways. For example, they list the initial members/shareholders, delegate their powers and responsibilities, indicate if and when members/shareholders are entitled to financial distributions, outline incentive equity, and determine what happens if members/shareholder get into a dispute.
When you are in preliminary talks with potential clients, employees, independent contractors, partners, or vendors, you need to be able to discuss your company openly but also want the information you share to stay confidential. The tool for this is the non-disclosure agreement (aka confidentiality agreement). While you can find plenty of non-disclosure agreement forms on the Internet, startup founders need to be careful to draft confidentiality agreements that are tailored to their individual business needs.
It is imperative that you enter into proper contracts with the individuals who are providing services for your company. There are many provisions in these agreements that need a magnifying glass for each unique company, such as compensation, termination, intellectual property assignment, non-competition and non-solicitation clauses. This is a common cause of legal issues down the road If not thoughtfully addressed in employment agreements and/or independent contractor agreements.
- Master Services Agreement
Master services agreements are contracts where one party agrees to provide services to another. While these agreements can be a one-time deal between parties, they are also useful for long-term business relationships because they create an initial framework that establishes the foundation for all future actions between the parties. The flexibility of a master services agreement allows the parties to adapt to business landscape changes while maintaining their core relationship.
If you want to sell ownership in your company to another party, you will need to have a membership interest purchase agreement for an LLC, or a stock purchase agreement for a corporation. These agreements detail the terms of the sale and establish the terms that a buyer accepts to become a new owner of the company.
A subscription agreement is the legal tool that evidences an investor buying equity in a company. Under a subscription agreement, the investor will purchase units (for an LLC) or shares/stock (for a corporation) of the company (all commonly referred to as “equity”). The sale of equity is typically subject to the regulatory requirements of the Securities and Exchange Commission, which can be time consuming and costly; however, transfers of equity in privately held companies via a subscription agreement can be exempt from such regulatory requirements, making the subscription agreement a critical tool for startup founders seeking outside equity investment.
As a startup founder, it is imperative that you protect your intellectual property. This entails submitting the appropriate paperwork with the US Patent and Trademark office or your state’s secretary of state. Registering properly and timely will help ensure that you have the exclusive rights over your intellectual property.
Stock Legal is a corporate law firm that represents startup founders across the United States. In order to make quality legal work affordable for companies of all sizes, we offer fixed fee pricing that fits into your budget. If you are planning to start a company (or if you have already started a company), we can help you with the documentation you need to be successful. For more information about our services and rates, visit us at stocklegal.com or call us at (314) 297-0855 to schedule an initial consultation.