How many times have we gone on a website, signed up and checked the “I have read and understood the terms and conditions” box without even reading the terms and conditions? Every. Damn. Time. Since we don’t read them ourselves, we think that they are not important. But, these T&Cs are the rules and guidelines that a company sets for its user. These are the details of the services that your company provides. Legal Documentation also lays down the terms for your employees and for yourselves.
Definition
Legal instrument is a legal term of art that is used for any formally executed written document that can be formally attributed to its author, records and formally expresses a legally enforceable act, process, or contractual duty, obligation, or right, and therefore evidences that act, process, or agreement.
Often small businesses underestimate the need for legal documentation and thus end up incurring huge losses due to their absence. Here are 8 must-need legal documents that every start-up should have.
Corporation
Partnership Agreement
If you have a partner in your start-up, this a much recommended but not absolutely necessary document.
What: A partnership agreement is a voluntary, written contract between two or among more individuals with the mutual understanding that profits as well as losses will be shared between/among the partners. It is essentially put in place to take care of the capital, labour, skills, and corporation in business, and procedures for changes or termination of partnership.
Why: If there exists a well-laid out and well-defined partnership agreement, the scope for conflict over ownership division, roles of partners, and division of assets upon termination diminishes by quite an extent.
Clauses to be included: A partnership agreement should cover the following areas:
- Details of the partners and their designation
- Host Agreement: Roles and responsibilities of each partner
- Meeting procedures: Order of precedence, voting rights of each partner
- Capital Contribution: Includes recording of capital ownership as well as percentage ownership.
- Profit/Loss sharing: Sets out the exact share of each partner in terms of profit or losses based on capital contribution
- Misconduct: Procedures to be followed in case of serious misconduct by any partner. Terms of expulsion must also be clearly laid out.
Corporate Bylaws
What: A corporation’s bylaws are the internal rules that govern the day to day operations of a company, such as how the board members will be elected, number of members on the board, and such procedures and legalities of corporate life.
Why: By having clear, well defined by-laws, you can maintain your status of an LLC, and limit your personal liability as a corporation. You leave behind a paper trail that shows that your company is following traditional business rules.
Clauses to be included:
- Shareholder meetings: date of the meeting, number of directors serving on the board, quorum and majority votes.
- Stock: Who signs the stock certificate, what happens in case a shareholder sells or transfers his/her stock
- Board of directors: Minimum and maximum number of directors on the board, procedure for filling of vacancies, voting majority
Employment
Intellectual Property (IP) Assignment Agreement
What: Intellectual Property Assignment refers to the transfer of an owner’s rights in copyrights, trademarks, patents, or other intangible creations .
Why: In the absence of an IP Agreement, the owner of the newly created IP, is the creator and not the company. It is in your company’s interest that all the relevant intellectual property be the sole ownership of the company and not the individual.
Clauses to be included: An IP Assignment Agreement contains the following few clauses:
- Definition of IP: How your company defines intellectual property. In case of a tech firm, it’s the software code. In case of a magazine, it’s the various articles and pictures.
- Assignee Warranty: Acceptance the assignee is the owner of the property, and that he hasn’t sold it to a third party
- Assignor Warranty: Promises that the assignor has funds to pay the assignee for the said intellectual property
- Infringement clauses: Which party takes responsibility in case of an infringement claims.
Employment contract
What: An employment contract or offer letter or a non-compete is an agreement signed between two parties, namely, the “Employer” and the “Employee”. While non-competes forbid employees from joining competitors for a period of 12-18 months after leaving, employee contracts dictates what the rights of the employee are.
Why: Having a signed employment contract from the employee, gives you the assurance that the employee is aware of their duties and obligations towards the corporation, and has agreed to comply with the terms. It also endeavours to protect the business clientele.
Clauses to be included: Employee contracts vary from company to company, but the following clauses are generally present
- Basics: The names of the employer, employee, place of work, job title
- Pay: The employee’s pay rate, payment method, payment interval (weekly or monthly)
- Work hours: Number of work hours per day, days of work in a week, payment in case of overtime
- Company policy: Terms related to paid leaves, including paid sick leave, vacation days, dress code, etc.
- Termination: Period of notice of termination, minimum duration for which the employee is expected to work after the date of joining
- Other agreements, if any
For a non-compete, the following can be included:
- Definitions: The term “working for competitor” must be clearly defined
- Time period: The duration for which the employee must refrain from working for a competitor
- For former employees: A clause forbidding former employees to hire current employees
- Compensation: The amount the employee is supposed to pay in case a non-compete is breached, depending on the severity of the breach.
Freelance Agreement
What: Freelance agreements are tailored for freelancers according to their terms. As such, they can be initiated by the client or the freelancer.
Why: A freelancer chooses his own clients, and also the work hours. Having an agreement in place, detailing how the work is to proceed, can save both the client and the freelancer from losses.
Clauses to be included:
- Scope of Work: Detailed description of the work to be done.
- Ownership: Generally the freelancer owns the work till the final payment is made, post which 100% rights are transferred to the client.
- Pricing and mode of payment: Does the freelancer charge you hourly, or for the total work done. Does he accept the full payment at once or in installments.
- Deadline: A deadline must be set for all work done, else the freelancer could take forever in completing them.
- Single point of contact: Specify one person who will deal directly with the freelancer. As we know “too many cooks spoil the broth”. The same could happen to your project.
In addition to the above clauses, a freelancer might also be asked to sign a NDA and a non-compete.
Also Read: Why should you have a not-to-do list instead of a to-do-list?
Website-related legal documentation
Terms of services
What: Terms of Services or Terms and Conditions, along with privacy policy, is the only agreement between the website operator/owner and the end-user. Terms of Service Agreement may be seen as a set of regulations, which users are required to follow to use a service.
Why: In case of non-compliance with the Terms and Conditions set by a website, a user can be disconnected and barred from using certain services. They can also be used to regulate what can be done with your content, and also set boundaries on users’ expectations.
Clauses to be covered: The terms and conditions of your website should address the following, some or all, which is by no means an exhaustive list.
- Services provided: Description of the functionality of the website, and services offered with it
- Accounts: Method for deleting accounts, what happens to user data in case of account deletion
- General disclaimers
- Age restrictions, if any
- IP Clause: Stating who owns the data on the website
- Termination: Blocking a user in case of abusive content on the website or not allowing the user to access certain areas of the website without registration
- Warranty Clause: Notifying users that the owner doesn’t hold responsibility for errors, inaccuracy, and/or incompleteness of the content or information.
Privacy Policy
What: A privacy policy is an unsaid agreement of trust and respect that you aim to establish with your users, while at the same collecting data from them. It specifies what the owner of a website/ company can or cannot do with the user’s information, and how it intends to use the information.
Why: When a user fills out a form on your website, he/she needs to know exactly where, how and how much of his/her data will be used. They have the right to know that the information they have provided on your site, will not be shared with a third party (unless specifically mentioned), and they won’t be bombarded with annoying spam mails.
Clauses to be included: A privacy policy usually covers the following issues
- Information: Exactly what data you are going to access from the users
- Notice: What is the purpose of the data collected, how is going to be used
- Choice: User can opt out of providing certain information
- Security: You are entirely responsible for keeping the data away from unauthorized eyes and hands
- Third party: Whether data will be shared with a third party, if so then what data, and how will that shared data be used by the third party
Confidentiality
Non-Disclosure Agreement (NDA)
What: A non-disclosure agreement (NDA) is a legal contract between parties establishing the secrecy and confidentiality of shared knowledge and other data as specified in the contract.
Why: Any kind of data shared between two parties can be considered as confidential by any of the two parties. NDAs thus protect sensitive information such as passwords, customer details, software, and any other data. An NDA can also give you a competitive edge, in a case where your idea is new in the market.
Clauses to be included: An NDA usually should include the following few specific parts:
- Definition of confidential information: This is a highly variable section, depending on your company, the person you are dealing with and what you aim to gain out of the partnership.
- Exclusions: This might include data collected before the signing of the NDA, or information already considered common knowledge.
- Obligations: The duty of either parties to keep the recieved information a secret and to not use it for personal or professional gain other than the clauses as mentioned in the NDA
- Time period: how long you want the signees to keep mum.
[Disclaimer] : We at The Hacker Street are no lawyers or legal experts. This is merely a guide on the different kinds of legal documents that may be required of you. You don’t have to write any of these from scratch. Templates and samples are available on the internet, though we recommend getting the documents reviewed by a lawyer before signing them.
