What Are the 10 Contracts Every Startup Should Have on Hand?

In the sprint of startup growth, speed is the name of the game. The ability to seize opportunities, attract talent and close deals quickly can be the difference between leading the pack or falling behind.

However, an often-overlooked factor in maintaining this pace is having certain key legal agreements readily on hand. Well-drafted agreements allow startups to navigate complex negotiations swiftly and confidently, ensuring that nothing slows down growth. In this article, we highlight the 10 essential contracts every startup should have at its fingertips, expounding on how each of them serves as a catalyst for swift deal closure while simultaneously safeguarding the company’s interests.

It’s not enough to just grab any version of these agreements off the internet. In order to ensure that you can scale with confidence, you’ll want to work with counsel to draft custom versions of these agreements that are right for your company. If you’re looking for legal counsel to help you draft custom agreements for your startup, feel free to reach out to us here.

1. Advisor Agreement

An advisor agreement is a formal contract between a startup and an individual who agrees to serve in an advisory capacity to the company. Here’s why an advisor agreement matters for startups.

• Defines Responsibilities. The agreement specifies the roles and responsibilities of the advisor. This could range from providing strategic advice; making introductions to potential customers, investors or partners; or mentoring the founders.
• Outlines Compensation. The agreement often outlines how advisors will be compensated for their work. This is often done through equity (shares in the startup), but it can also involve cash payment or a combination of both. By clearly defining this, both parties can avoid potential disputes or misunderstandings in the future. To learn more about adviser compensation click here.
• Protects Intellectual Property. Advisor agreements usually contain confidentiality and intellectual property (IP) assignment clauses. These provisions ensure that any IPs the advisor contributes to the startup is owned by the company and any confidential information they receive is kept secret.
• Duration and Termination. The agreement states the length of the advisor’s service and under what conditions the agreement can be terminated. This provides clarity on the expectations from both sides.
• Non-Compete and Non-Solicitation. The agreement might contain non-compete or non-solicitation clauses, prohibiting the advisor from competing with the startup or from poaching its employees or clients.

By having a clearly written advisor agreement, a startup can establish a healthy, clear and legally secure relationship with its advisors, thus leveraging their expertise effectively while protecting its interests. However, it’s always recommended to consult with a lawyer when drafting such an agreement to ensure all bases are properly covered. If you’d like to learn more about adviser agreements, click here.

2. Independent Contractor Agreement

An independent contractor agreement is an agreement that outlines the terms and conditions of a working relationship between a startup and an independent contractor, freelancer or consultant. Here’s why an independent contractor agreement matters for startups.

• Clear Definition of Work. The agreement clearly specifies the nature of the services to be provided by the contractor. This provides clarity on the expectations from both sides and can help prevent misunderstandings in the future.
• Payment Terms. The agreement defines how and when the contractor will be paid. This could be on an hourly basis, per project or another agreed-upon arrangement. It often includes details about expenses, taxes and invoice procedures.
• Protects IPs. The agreement includes confidentiality and IP assignment clauses to protect the startup’s sensitive information and ensure that any IP created by the contractor is owned by the company.
• Establish Relationships. The agreement makes clear that the contractor is not an employee of the company, which has important legal and tax implications. It reduces the risk of misclassification of the worker, which can lead to potential liabilities and penalties.
• Termination Terms. The agreement sets the terms under which the contract can be terminated. This helps to set expectations and provides a way to end the relationship if necessary.

A well-drafted independent contractor agreement is crucial for startups when engaging freelancers or consultants. It provides clarity, protects the startup’s interests and mitigates potential risks. As with any legal agreement, it’s recommended to seek legal advice when drafting these agreements. To learn more about independent contractor agreements, click here.

3. Employment Offer Letter

An employment offer letter is an agreement sent by an employer to a candidate selected for employment. The letter confirms the details of the employment offer. Here’s why an employment offer letter matters for startups.

• Clearly Defines the Job. The offer letter sets out the role and responsibilities of the job, providing a clear expectation of what the job involves.
• Compensation and Benefits. The letter outlines the salary, bonuses, benefits and any equity compensation (common in startups), allowing the candidate to fully understand the compensation package.
• Sets the Terms of Employment. The offer letter provides key details such as the start date, work location, working hours, reporting structure and any probationary period.
• Legal Protection. The letter may include legal provisions, such as confidentiality and non-compete clauses, to protect the startup’s intellectual property and business interests.
• Helps with Onboarding. An offer letter helps in initiating the onboarding process by providing necessary details about the job and the company.
• Reinforces Professionalism. A well-crafted offer letter presents the startup in a professional light, reinforcing the seriousness of the offer and the professionalism of the organization.

An employment offer letter is crucial for startups as it provides clear communication with prospective employees and offers legal protection for the company. Legal advice should be sought to ensure the offer letter complies with all relevant laws and regulations. If you’d like to learn more about employment offer letters, click here.

4. CIIAA

A Confidential Information and Invention Assignment Agreement (CIIAA) is an agreement signed by employees (and sometimes contractors) in which they agree to keep the company’s proprietary information confidential. Additionally, they agree that all inventions, intellectual property, and related rights they develop during their employment or contract period belong to the company. Here’s why a CIIAA matters for startups.

• Protects Confidential Information. The agreement requires employees or contractors to keep the company’s proprietary information confidential. This could include trade secrets, business strategies, customer lists and other confidential information, providing an essential layer of protection for the startup’s business operations.
• Secures Intellectual Property Rights. In a CIIAA, employees assign any inventions, software, designs or other intellectual property they develop during their relationship with the startup to the company. This ensures that the startup retains valuable IP rights.
• Provides Legal Recourse. If an employee or contractor violates the agreement, the startup has legal grounds for a lawsuit. This can act as a deterrent and provides a remedy if the agreement is breached.
• Aids in Investor Attraction. Investors usually prefer startups that have strong legal agreements in place to protect their IP and confidential information. Having a CIIAA can make a startup more attractive to potential investors.
• Facilitates Business Transfers. If the startup is sold or transferred, having a CIIAA in place can help ensure that all IP remains with the company, facilitating a smoother transfer.

A CIIAA is critical for startups to protect their confidential information, secure intellectual property rights and potentially increase their attractiveness to investors. It’s advisable to consult with a legal professional to ensure the agreement is properly drafted and enforceable. If you’d like to learn more about CIIAAs, click here.

5. Stock Grant

A stock grant, also known as a Restricted Stock Agreement or RSA, is a method used by companies, including startups, to compensate or incentivize employees, directors, advisors and consultants. The agreement is generally titled as a Restricted Stock Purchase Agreement (RSPA). Through the RSPA, the company grants these individuals a certain number of shares in the company’s stock as part of their compensation package.

Here’s why a stock grant matters for startups.

• Attracts and Retains Talent. Stock grants can help startups attract and retain high-quality talent. Given the cash constraints often experienced by startups, offering equity can be an attractive way to compensate employees without impacting cash flow.
• Aligns Interests. When employees own a part of the company, their interests are more likely to align with the interests of the company. They may be more motivated to contribute to the company’s success, as they stand to benefit directly from any increase in the company’s value. The vesting schedule ensures that the employee is incentivized to contribute for the long term.
• Investor Attraction. Investors often see startups with employee equity programs as more attractive, as these programs can demonstrate that the company is investing in its team and has a strategy to retain its key personnel.

Stock grants can be a powerful tool for startups to attract, retain and motivate talent, align interests with the company’s success, and potentially make the startup more attractive to investors. However, there are complexities involved, particularly around taxation and dilution of ownership, so it’s advisable to seek legal counsel when drafting the RSPA. To learn more about stock grants, click here.

6. Stock Option Grant

A stock option grant is slightly different from a stock grant. A stock grant is an issuance of common shares in the company. However, a stock option grant is the issuance of a right (or option) to purchase common shares in the company at some future date at a fixed price, known as the strike price.

Here’s why a stock option grant matters for startups.

• Attracts and Retains Talent. Much like direct stock grants, stock options can help startups attract and retain talent. Given that cash may be tight in a startup, offering potential equity in the form of stock options can be an attractive form of compensation.
• Aligns Interests. Stock options give employees the opportunity to share in the growth and success of the company. This can align the interests of the employees with those of the company and its shareholders, incentivizing employees to contribute to the company’s success. The options typically vest over a certain period of time to incentivize recipients to stay with the company.
• Preserves Cash. Since stock options don’t require an immediate outlay of cash from the company, they can be a cost-effective form of compensation for cash-strapped startups.
• Tax Considerations. Depending on the jurisdiction and the specific structure of the stock option, there may be tax advantages associated with stock options for the employee.
• Investor Attraction. Investors often see startups with employee equity programs as more attractive, as these programs can demonstrate that the company is investing in its team and has a strategy to retain its key personnel.

Stock option grants can be an effective tool for startups to attract, motivate and retain talent; align interests with the company’s success; and potentially make the startup more appealing to investors. As with any equity compensation tool, it’s important to understand the tax implications and potential dilution of ownership, so it’s advisable to seek legal counsel when drafting the stock option grant. To learn more about stock options, click here.

7. NDA

A nondisclosure agreement (NDA) is an agreement between two or more parties that outlines information the parties wish to share with each other for certain purposes, but wish to restrict from wider use or dissemination. NDAs are generally used before companies or individuals have begun working together. It allows each party to discuss a potential relationship without risking proprietary information.

Here’s why an NDA matters for startups.

• Protects Confidential Information. NDAs help startups protect their sensitive information. This can include business plans, customer data, technology, trade secrets and other proprietary information that gives a company a competitive advantage.
• Facilitates Business Relationships. NDAs can enable startups to collaborate with other businesses, potential partners, employees and contractors by providing a safe way to share sensitive information without fear of it being disclosed.
• Provides Legal Recourse. If the terms of the NDA are violated and confidential information is disclosed, the wronged party has a right to take legal action and seek damages.
• Adds Professionalism. Having an NDA in place can demonstrate to other parties that a startup is serious about protecting its intellectual property and other proprietary information.

An NDA is a crucial tool for startups to protect their proprietary information, enabling them to freely collaborate, seek investment and grow their business. Legal advice should be sought when drafting and signing NDAs to ensure they provide adequate protection and are legally enforceable. To learn more about NDAs, click here.

8. Master Service Agreement

A Master Service Agreement (MSA) is a contract between the startup and its client when the startup is offering services. MSAs are common in situations where services are rendered on an ongoing basis and streamline the process for future individual contracts, often referred to as Statements of Work (SoWs).

Here’s why an MSA matters for startups.

• Streamlines Business Deals. MSAs allow startups to agree on general terms and conditions for all future transactions or agreements, reducing the need to renegotiate terms for each individual contract. Then the terms of each engagement can be detailed in a separate Statement of Work.
• Establishes Long-Term Relationships. MSAs can facilitate the establishment of long-term relationships with vendors, clients or partners by setting the groundwork for ongoing collaboration.
• Reduces Legal Risks. By setting out the terms and conditions of the relationship in advance, MSAs can help to reduce potential legal risks and misunderstandings.
• Saves Time. Once an MSA is in place, future contracts can be simplified into SoWs, which focus on the specific details of each individual project, saving time in the negotiation process.
• Enhances Professionalism. Having a well-crafted MSA can reflect positively on a startup, showing potential partners that it is serious about its business operations.

An MSA is a valuable tool for startups looking to establish ongoing relationships with vendors, clients or partners. It sets the stage for streamlined business deals, reduces legal risks and enhances professionalism. As with all legal documents, it’s advisable to seek legal counsel when drafting and negotiating an MSA.

9. Board Consent

A board consent, also known as a written consent, is a document used by a company’s board of directors to approve corporate actions in writing, without holding a formal board meeting. The actions could include things like approving annual financials, electing officers, issuing equity, approving contracts or amending bylaws.

Here’s why board consent matters for startups.

• Simplifies Decision-Making. Board consents allow decisions to be made without needing to coordinate a formal board meeting. This can simplify and expedite the decision-making process, especially useful for startups where speed is often essential.
• Documented Approval. Board consents provide a formal record of the decisions made by the board, which is important for maintaining proper corporate records and demonstrating good governance.
• Legal Requirement. Depending on jurisdiction and the company’s bylaws, certain corporate actions may require board approval. A board consent can provide a convenient way to obtain this approval.
• Investor Confidence. Maintaining proper documentation of board decisions can give investors confidence in the startup’s corporate governance and could be a requirement in due diligence for fundraising or an acquisition.
• Facilitates Audits. In the event of a financial audit or legal dispute, having clear records in the form of board consents can make it easier to demonstrate that the company has been acting appropriately and with board approval.

In summary, board consents can provide a practical and efficient way for startups to approve important decisions, maintain proper corporate records, satisfy legal requirements and demonstrate good governance. As always, it’s advisable to consult with legal counsel to ensure that board consents are being used appropriately and that all decisions are properly documented.

10. Separation Agreement

A separation agreement is an agreement that outlines the terms and conditions under which an employee and an employer part ways. The agreement may cover various elements, such as severance pay, release of claims against the company, non-disparagement clauses, return of company property, confidentiality obligations and more.

Here’s why a separation agreement matters for startups.

• Provides Clear Terms. A separation agreement outlines the terms of the separation in a clear, legally binding manner. This reduces the likelihood of future disputes and misunderstandings.
• Protects Company Interests. The agreement often includes provisions that continue to protect the company’s confidential information and IPs after the employment relationship ends.
• Includes Release of Claims. An important component of many separation agreements is a release of claims, where the employee agrees not to sue the company for wrongful termination or related claims. This can provide a significant legal safeguard for the startup.
• Outlines Financial Obligations. The agreement typically includes details about any severance pay, outstanding salary, bonuses or stock options, providing clarity about the financial obligations of both parties.
• Manages Reputation. Non-disparagement clauses can help protect the reputation of the company and its employees by preventing the departing employee from making negative or harmful statements about the company.

A well-drafted separation agreement can be crucial for startups in managing the end of an employment relationship in a way that protects the company’s interests and minimizes potential legal risks. As always, it’s recommended to consult with a legal professional when creating or signing such an agreement. If you’d like to learn more about Separation Agreements, click here.

Conclusion

In conclusion, having the right legal agreements in place can be critical for startups. These agreements can provide clarity, protect intellectual property, facilitate business relationships and mitigate legal risks. While it’s always important to seek legal advice when drafting and signing legal documents, understanding the importance of these agreements can help startups operate more smoothly and confidently. By taking the time to put these agreements in place, startups can set themselves up for long-term success.