It is tough for firms to get all of the necessary legal documentation. We’ve developed a list of 32 essential business papers that every company should have.
The paperwork is one of the most onerous and least intuitive aspects of launching a company.
To assist clear up some of the confusion, we’ve compiled a list of some of the most crucial business papers that will serve as a fast reference once you incorporate.
Table of Contents
Documents for Obtaining Funding/Venture Capital
83(b) Election Form: In the startup world of unvested shares, many owners decide to be taxed on the fair market value of property that they now hold but may not be able to maintain. Why? Because the current value is likely to be less than the future worth, the owner may save money in the long term. Before you do anything, consult with your tax adviser.
A cap table, as the name indicates, is a table that summarises the founders’ and investors’ percentage of ownership, stock dilution, and equity value in each round of investment. This level of information is critical for attracting and retaining new prospective investors.
Due Diligence Request List: If you are in talks about a prospective purchase, you should get a due diligence request list and begin gathering the papers on that list. It may seem early, but acquisition possibilities arise rapidly, and you want to be ready when they do.
Investor’s Rights Agreement: When the company and the universe of shareholders are still tiny, investors often want to know what “rights” their investment has given them. These often include things like inspection rights, first offer rights, and so forth.
When interacting with venture capitalists, you may be required to sign a management rights letter, which permits the VC to attend board meetings and otherwise have access to business management. This is usually exchanged for substantial sums of injected money, VC business knowledge, or both.
Model Legal View: It is common for lawyers to express their opinion on the company’s actions as part of the company’s formation, and as part of due diligence, it makes sense to both do things in full sequence and get legal opinions to that effect.
Right of First Refusal (ROFR) and Co-Sale Agreements: The ROFR and co-sale agreements operate together to ensure that stockholders cannot liquidate shares without giving the majority or preferred shareholders the opportunity to buy those shares. It is critical to notify all shareholders of the mechanism in this case, since liquidations are not readily reversed.
Shareholder Agreements: The relationship between shareholders in smaller firms or startups is defined by BOTH the company’s foundation papers AND a shareholder agreement. When the number of founding stockholders is limited, they have more freedom, and they are more likely to keep each other responsible due to proximity/familiarity. There are several templates available for this, but contact with your attorney first.
Stockholder Permission: A kind of written consent document that permits shareholders to act without holding a formal stockholder meeting. It is especially beneficial when the number of stockholders is limited.
Stock Purchase Agreement: Because this is the final agreement that describes the ownership and distribution of the company’s stock/shares, it must be created by an attorney and regularly updated to reflect your company’s conditions.
Term Sheets: A term sheet is a concise overview of the parameters of any possible financial partnership that is legally binding until the parties reach a definitive agreement. It’s an excellent technique to swiftly reach an agreement.
A voting agreement specifies the conditions under which one or more of the pool of shareholders may act collectively. This may play an important part in your business’s success from the beginning and throughout its evolution.
Documents to Aid Internal Operations
Board Approval: Any company should function with the assistance of their board of directors, and in order to do so, you need develop a consistent method for obtaining the board’s consent. This may take a variety of forms, so make a choice depending on your own circumstances.
Intellectual Property (IP) Assignment Agreement: Because the Intellectual Property (IP) vested in a startup is often one of the most important parts of the value inherent in a business, it is best practise to assign that value among the founders/co-founders/investors (if applicable) right from the start. There are several forms available to assist you with this.
Invention Assignment Agreement: Just as technology is produced for a company and the IP rights must be assigned to the firm, when new inventions are part of a startup, you must ensure that the invention is assigned to the business as soon as possible.
Operating Agreement (Founder’s Agreement): This is one of the typical paperwork that should be filled out before doing any serious business. Founder and co-founder disagreements are unavoidable, and they are made much more difficult and nasty when there is a lack of clarity about early equity divides, who contributed what property/skills to the partnership, who owns initial IP, and so on.
Technology Assignment Agreement: Because the development of proprietary technology is often part of the startup environment, it is critical to establish a standard form that assigns the intellectual property rights for any technology generated FOR the company TO the business.
Documents to Aid Outside Operations
Adviser Agreement: As stated above, you want to ensure that anybody acting as an advisor to your company understands their scope of responsibility. You don’t want them to overburden you.
When you have to interact with (or hire) consultants to assist you get your company done, you must have them sign an agreement outlining what they can and cannot do in relation to your entire operation. Many organisations have been fined as a result of the conduct of consultants who pretended to be employees. Make certain you are not one of them.
Employee contracts and offer letters are generally looked of as a luxury for young enterprises, but they will become standard after your first employment dispute. Take the effort early on to clarify your workers’ roles, duties, and rights, and you will safeguard your company’s interests in the event of a conflict.
Indemnification Agreement: Startups that deal with business-to-business transfers often have some kind of indemnification agreement in place once their product is in the hands of someone else. Any obligation related with your product is now transferred to the entity in charge. Liability transfer from company to person may also occur, although it is often more restricted. Consult with an attorney
Responsibility Release Forms: No matter what kind of company you operate, it’s always a good idea to create a standard release of liability form that you can provide to anybody who uses your services. There are several forms available for this, but you should consult with your lawyer about tailoring the forms to your specific requirements.
Non-Disclosure Agreements (NDAs): Non-disclosure agreements (NDAs) safeguard fledgling enterprises in a variety of ways. Initially, they let you to discuss business ideas with possible workers, developers who may contribute to your portfolio, and so on without fear of your private information being exposed. NDAs also allow you to prevent your present employees from defecting to a rival and taking your company with them. Use them early and often.
Asset Ownership: It is critical to split both the business parts and the assets of the firm. For example, if you formed a printing firm and just one person installed the commercial printer, you need create an agreement outlining who owns what. If you don’t, a dissolution might jeopardise your whole ownership.
General Operating Procedures
Yearly Report and Financial Report Templates: Finally, following incorporation, you will be obliged to submit annual reports (financial and otherwise) to your state in order to keep your certification current. The moment to create such templates is now. Failure to submit your yearly corporate filing is the quickest way to lose your “Good Standing” with your state corporation commission.
Business bank account, business credit card, and unambiguous separation of business and personal assets: This is not strictly “documentation,” but it is absolutely necessary for establishing a clear line between your personal and corporate finances, so establishing corporate bank accounts and credit lines as soon as possible can help to protect both you and the corporation if you run into trouble down the road. Timing is key in this process, since the dates of corporation formation and corporate account creation might be critical to maximising the protection given by the corporate legal framework.
Business Licenses: While this is a situation-specific collection of paperwork, don’t jeopardise your company’s success by failing to get the essential licences to do business in both your state and area.
Bylaws: One of the most neglected places where new organisations may make expensive blunders is in their bylaws. The first error is not creating and enacting any ordinances at all. The second, and more prevalent, mistake is implementing a set of rules that are not customised to your organisation. If you are willing to adopt a “model” set of bylaws from an existing organisation WITHOUT expending the time/energy to tailor them to your specific circumstances, you will almost certainly wind up with crucial coverage gaps that might prove expensive.
Notice of Incorporation (If Required by Your State): Some jurisdictions require newly formed companies to post notice of their corporate “birth” in a succession of public venues, such as local newspapers. On a “notice” level, this makes sense to provide people and other companies with the assurance that your company is a reputable prospective partner, and it also serves as an early marketing tool. All in all, a good move.
Online Privacy Policy: A comprehensive and readily accessible privacy policy is required to give maximum openness, develop trust with your consumers (and obtain recognised by the Better Business Bureau). What should it contain?
Details about the personal information gathered on your website.
Information about the customer’s choices for how and if data is gathered and utilised.
Details on how consumers may view what data has been gathered and, if required, rectify it.
Assurance on how gathered data is stored/protected, as well as information about what the client may do if the privacy policy is not followed.
Information on how policy changes will be notified.
Registered Agent: Although this is a general requirement, once established, you should promptly identify and create a registered agent in your state of incorporation. Many organisations utilise the original filers (often you) as registered agents, whilst others choose to engage a professional registered agent who will give a constant and dependable contact outside the company.
Terms of Service/Use: In addition to an online privacy policy, you will need a clear set of terms of service/use (TOS/TOU), which will outline how your corporation will use any information collected from customers and potential customers who visit your website or interact with any of your corporate information portals. Make certain that these terms are stated in plain and straightforward language and that they are clearly displayed while clients are at the point of sale.
These (and other) papers will provide a solid basis on which to build a strong firm. Not only is document management and development a wonderful idea, but they will also be a part of your corporation’s public-facing side and will either be a positive or poor recommendation for your organisation. Make certain that you have control over the narrative that these materials convey.