Essential Documents for Businesses – Why, When & Where

There are a ton of articles out there on the basic legal documentation that a business should have in place. This applies to not just startups but also more established businesses. Despite the wealth of information out there, we still inevitably run across more often than not, businesses operating with ZERO documentation. Excuses range from “It’s too expensive to engage lawyers!” to “A spit and a handshake is how real men do business”. At risk of flogging a tired horse here, we politely beg to differ and go “What the f*** bro?” Politely of course.

So lets run through the basic documentation required as well as the Why and When its required before doing another shameless self promotion of Where you can find this (no prizes if you guessed accurately that they are found on our website).

Shareholder’s Agreement

Why do you need this? – This is VITAL if there are more than one of you holding shares in the business. All parties must be on the same page at the get go as to what exactly the deal is among everyone. An oversight in this regard or the proverbial “I am sure nothing can go wrong… I mean my friends won’t screw me right?”  can cause enormous problems later. Some of the things the shareholder’s agreement should answer is:

  • Who gets how large a share of the company? In the case of two founders, it can be 50/50 or 70/30, there are no hard and fast rules here.
  • If one founder leaves, does the company or the other founder have the right to buy back that founder’s shares? At what price are the shares to be bought back?
  • Are the founders entitled to salaries or benefits?
  • How are key decisions and day-to-day decisions of the business to be made? (majority vote, unanimous vote, or certain decisions solely in the hands of the CEO?)
  • Under what circumstances can a founder be removed as an employee of the business?
  • What assets (this can be intellectual property) or cash into the business does each founder contribute or invest?
  • How will a sale of the business be decided?

When do you need this? – Ideally before the business is started and if not then as soon as possible.

NDA

Why do you need this? – These are also referred to as Non-Disclosure Agreements or NDAs. The purpose of the agreement is to allow the holder of confidential information (such as a product or business idea) to share it with a third party.  The third party is obligated to keep the information confidential and not use it whatsoever, unless allowed by the holder of the information. There are usually standard exceptions to the confidentially obligations (such as if the information is already in the public domain).

Every employee should be required to sign such an agreement if its not already captured in their employment contract. This obligates the employee to keep confidential the proprietary information of the business, both during employment and after employment. Second, it ensures any inventions, ideas, products, or services developed by the employee during the term of employment and related to the business belong to the company and not the employee.

When do you need this? – Ideally before the projects with confidential information is shared with a third party and if not then its as soon as possible.

Assignment of Intellectual Property

Why do you need this? – Many new businesses are founded on intellectual property. The intellectual property might be a software copyright, a design copyright, or a pending patent. Without an intellectual property assignment agreement, the company may not truly own the intellectual property. For example, if one of your founders created software before your company was formed, he or she owns the copyright to that software unless there is a written assignment agreement transferring the copyright to your company.

The same is true of a freelancer who creates intellectual property for you. This can cause big problems if the founder leaves the company, the freelancer refuses to assign the copyright, or outside investors ask for evidence that the company owns its intellectual property.Your founders, employees, and independent contractors should sign intellectual property assignment agreements at the outset to guarantee that your company does own its intellectual property assets and to prevent any challenges later.

When do you need this? – Ideally before the business is started and if not then as soon as possible.

Employment Agreement (temp/permanent)

Why do you need this? – It’s a bad idea to bring on new employees without having clear contracts and offers of employment. These should outline all terms of the offer and employment. This includes:

  • Length of employment – is it temporary or a permanent position?
  • Initial pay
  • Benefits if any
  • All duties to be performed
  • Company policies
  • Who owns the work they produce including anything that could be subject to a patent or copyright

When do you need this? – Ideally before the prospective employee joins the company and if not then its as soon as possible.

Standard Terms & Conditions

Why do you need this? – Almost every company should have their own standard form contract when dealing with customers or clients. But, there really isn’t a “standard” as every contract can be tweaked to be more favourable to one side or the other. Here are some key items to come up with your form of contract:

  • Ask for sample contracts from those in the same industry to get a feel of the key provisions
  • If possible, make sure you have an experienced corporate lawyer doing the drafting or giving you proper guidance (ask your friends for referrals for preferred and trusted lawyers)
  • Don’t make it so dense that the other party gives up reading it before they actually read it
  • Make sure you have set out your key terms clearly such as pricing, when payment is due, and what penalties or interest is owed if payment isn’t made
  • Try and minimise any representations and warranties you need to give
  • Include limitations on your liability
  • Include a “force majeure” clause relieving you from breach if unforeseen events occur
  • Include a dispute resolution clause

When do you need this? – Ideally before the business is started and if not then as soon as possible.

Where to find the Essential Documents – Converting the Rain into Sunshine!

All the documents listed above can be found in the templates section of our website here. We have made available free templates for those confident enough to DIY it themselves.For those that are not that confident and would like some legal advice for that added level of comfort, we have created another option which is part DIY, part legal guidance from our lawyers. This allows for a more cost effective solution to be presented. If however, you want to everything taken care of by us then lets have a chat to see how we can assist!