7 TYPES OF CONTRACTS THAT A STARTUP FOUNDER SHOULD KNOW ABOUT

With a vision to turn your dream into reality, an entrepreneur develop a unique product or service and bring it to the market. During their early growth, a common mistake which a founder does is not knowing the legal aspects and the types of agreements or contracts that he needs to use. It’s very essential to create a team to cover their legal bases. Below mentioned are 7 legal contracts which a startup owner should know while starting off which their company so as to avoid costly legal battles down the line.

1. Founder’s Agreement:

The Founders Agreement is an agreement that an Company’s owners need to have that guides their business connections. The Agreement mentions out the rights, duties, liabilities, and commitments of each founder. These Contracts controls the matters that may not be secured by the Company’s working arrangement. Eventually, Founders Agreement are intended to secure each founder’s interests and memorialise that all founders are in understanding about the Company’s fundamental structure and how the founders will cooperate to increase and flourish their business ahead. Drawing an understanding between all founders mitigates the danger of a claim over who possesses the business.

2. Intellectual Property (IP) Assignment Agreement

An IP assignment agreement is a contract that enables the transfer of rights to the intellectual property from the owner to another entity, such as the startup. The Startup owners should have all the IP rights when forming the company. This gives affirmation to investors that the owners of the IP have lawfully transferred the IP to the Company, but also protects from further infringement from people who try to copy ideas. The Founders of the startup also shall include the employee to sign such an agreement. This way, the any work authored or created by the employee in the course of employment  remains under the ownership of the business and not in the hand of that particular Employee.

3. Commercial Lease
A commercial lease is a type of lawfully restricting agreement made between a business occupant - the startup owner and a landowner. The lease gives the option to utilize the property for business or business action for a set timeframe. As a byproduct of this, you will pay compensation to the proprietor. The lease will likewise plot the rights and duties of both the landowner and the occupant during the rent time frame.

4. Employee Contract

This type of agreement determines terms and conditions of employment in the Company. This will mention all the necessary details about who the employer is and what work will be assigned to him. It includes the work type, the working hours, the terms of employment, the lockin period, compensation and advantages, work hours, privacy, yearly leave and different other key terms. This may also include the benefits provided to the Employee, like the health benefits, vacation time,  paid maternity leaves etc. This may also include signing a non disclosure Agreement with the company. Sometimes these types of Contract also include non completion agreement. This is a agreement which states that if the employee is supposed to leave the company, then they shall not be allowed to join any company that is a competition to the present company. When a new employee is to be recruited, The initial letter of offer for employment must be sent. After which the first thing before starting employment, is the signing of the Employee Agreement.

5. Services Agreement

A services agreement, otherwise called a contractual workers Agreement, or an agreement for Service is an understanding under which individual contractors consents to offer types of assistance to another Customer in return for compensation. These types of agreements are needed to dosing jobs such as app development, or Party catering, network Building etc. These may also include security services provided in the place of business. A contract entered into for a contractor to provide some form of useful task for their employers in return for compensation. A service agreement can also be a feature offered along with a warranty for a product for the manufacturer to provide service or coverage of any costs of service in case the product malfunctions during a given period.

6. Stock Purchase Agreements

Start-up and small businesses often need to raise capital and need investors to fund their business. This is often done by selling the stocks of the company. Stock Purchase Agreements are the main mode where stock sales can be initiated. Such an agreement can be vary from a few pages to 50 or more. This mostly depends on the investors and how complex the deal for seling the stock is.  In most agreements, the founders need to carefully lay out few things. They shall mention the type of the stock that is up for sale, the price and number of shares, how much representations and warranties the investors have, how much representations and warranties the company has, the conditions to closing, the rights and duties of the investors, and many more things. However, this type of agreement is not something a founder can draft on its own, the help of an experienced corporate counsel is essential.

7. Non-disclosure agreement

A non-disclosure agreement (NDA), now and then alluded to as a confidentiality agreement, is a drafted agreement between two people that restricts the sharing of secret data that has been uncovered to them. A investor or a employee both needs to sign such a NDA to protect the ideas and creations of the startup. This is also done to save business secrets from rival companies. More or less, if one signs a NDA, they are promising to keep it secret any delicate data imparted to you and not share it with others. On the off chance that you are the guarantor of the NDA, you are asking another person not to share any data you may impart to them. This may include what the confidential Information is, How it is supposed to be handles, how long is it to be protected etc.Startups might perceive a legal problem to be small when in fact the problem can potentially impact business in ways that only an attorney can foresee. While they can certainly read up on a particular legal issue if they have the time, it’s best to consult with an attorney who can anticipate various legal pitfalls their company might encounter. It is a known fact that 90% of the startup fail within 5 years of inception. In the present situation, the corona virus pandemic has resulted in the setback of many start ups. Many businesses have come to halt as the revenues have stopped coming.

Research by - Raksha Singhal