For many leading tech startups in London, the path to success is paved by innovation, creativity, and risk. However, failing to secure mission-critical legal documents and counsel is one of the biggest risks that entrepreneurs can make when taking their product from ideation to market.
Without a legal infrastructure in place to outline the relationships between founders, company, team members and investors, venture capitalists may view your startup as a greater risk. Having legal documentation in place sets up legal protections, defines roles and responsibilities, and provides a solid foundation from which to grow.
Of course, legal counsel comes at a price. For many growth-driven tech scale-ups with limited budgets, appropriating proper capital for legal matters is simply not an option.
"Unnecessarily attacking every issue with a battalion of lawyers is a great way to burn through capital, time and relationships," argues Daniel Glazer in 5 Tips for Managing Early-Stage Legal Costs.
Fortunately, there are a number of free resources available and some law firms offer deferred payments for tech scale-ups. If you’d rather put your funds toward product development or hiring a new team member, you can always start with a few key legal documents and go from there.
Protect your interests, avoid costly legal pitfalls, and maximize the likelihood of success for your business with these six must-have legal documents (that every London startup and scale-up should have):
What Legal Documents and Contracts Do Startups Need to Have?
1. Founders’ Agreement
A Founders’ Agreement is a contract that outlines ownership, investment, and equity among company founders. The document should govern ownership rights, define operational responsibilities, and more broadly, summarize the foundation of the shared venture among owners. Basic components of the agreement include:
- Company: What purpose does the startup serve? What solutions does it provide?
- Names: Who is involved? How will this agreement affect them?
- Responsibilities: What are owners tasked to do?
- Division of Equity: What is the value of ownership?
"Figuring out what each person is worth to the company can be very emotional and some co-founders decide to put off the conversation," notes Forbes contributor Annie Webber in her article 7 Common Startup Legal Mistakes And How To Avoid Them.
Establishing a clear legal understanding of equity and authoritative rights ensures complete transparency among co-founders and helps to prevent costly legal fees later on. The Founders’ Agreement helps get the conversation started and finalizes the way you will move forward as a company and as business partners.
2. Nondisclosure Agreement
The Nondisclosure Agreement (NDA) serves as protection for classified, private information or materialincluding business strategy, trade secrets, schematics for new product, algorithms, client information, and other sensitive data. The purpose of the NDA is to prevent employees, contractors, and/or investors from sharing, publicizing, or stealing confidential information without consent from the proprietor.
3. Articles of Incorporation
The Articles of Incorporation is a legal statement that contains the names of founding members and declares each subscriber's intention to incorporate the company. This document outlines the rules by which the company must adhere to and operate by. In the United Kingdom, incorporation is submitted through the Companies House, a registrar of UK limited entities.
Documents required to incorporate a company in the United Kingdom include:
For additional information including company registration and filing, visit https://www.gov.uk.
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4. Shareholder Agreement
The Shareholder Agreement is a contract which outlines ownership, investment, and equity among shareholders. This document is used to govern the relationship between founders and shareholders including vesting restrictions, transfer of shares, shareholder disputes, and exit strategies.
"One of the most common (and important) dispute resolution mechanisms found in a shareholder agreement is a buy-sell provision," notes Derek Hopfner, co-founder at Law Scout. "It is a simple and common mechanism that resolves deadlocks and allows shareholders to go back to focusing on their company."
The Shareholder Agreement provides a specially tailored procedural framework — obligations, protections, privileges, rights — for and by shareholders.
5. Employee Contracts
An Employee Contract is a legal document between the employer and employee. An employee contract defines employee rights, responsibilities, duties, and legally binding terms. Employees in the United Kingdom are legally entitled to a written statement including terms and conditions such as pay, holidays, and working hours, within two months of starting work.
Before entering into such a contract, it is important to review the Employment Contracts overview at https://www.gov.uk
6. Bylaws
How are shareholder disputes resolved? How do board members vote? Bylaws are the administrative and managerial rules that guide the operational composition of the company, owners, shareholders, and employees. Having bylaws in place protects the startup's long term organizational integrity from the unpredictable and turbulent future.
Create a Foundation for Startup Success
Taking the time to solidify your tech scale-up’s legal documentation can be costly and time consuming. However, solidifying your legal infrastructure is a critical step to providing protection, attracting top investment, and inspiring long term success and growth of your organization.
Making sure you have all the pieces of the puzzle in place for your tech startup is never ending and time consuming. Often, it’s your network that helps guide you through and point you in the right direction. At RocketSpace, we foster an environment of tech startups and scale-ups to help them grow and scale faster. Whether you connect with a like-minded peer at the coffee machine, or attend a roundtable discussion on legal advice for scale-ups, our tech campus helps you grow and overcome challenges through it's thriving ecosystem of tech talent and entrepreneurs.
Our model has helped raise more than $21 billion in funding for leading tech startups and scale-ups from around the world.
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