Today’s startup ecosystem has abundant agreements and contracts to insure one with a legal document that encloses full understanding of the business relationships and scope of work between different business entities. These documents are used as a business tool to eliminate any potential risks and misunderstandings in the future.
A well-drafted Contract or an Agreement doesn’t have to be daunting but shall be easy to understand, and make the working relationships between the parties clear. It should also have a clauses to a scenario where something goes wrong.
The principles of drafting a Contract or an Agreement are straightforward. Entrepreneurs can refer the following principles to incorporate a valid contract or agreement:
- Offer and Acceptance
A contract or an agreement does not come into existence until an offer and a subsequent acceptance hasn’t been made and received.
- Lawful Consideration
Lawful Consideration is payment in exchange of performance which can be anything of value including cash, good or services. Such consideration is a benefit which must is bargained for between the parties.
- Competent Parties
Competent parties refer to people, who are legally and mentally capable of entering into a contract or an agreement that is enforceable by law.
- Free Consent
Consent is regarded to be free, when consent from both the parties is obtained without coercion or undue influence or fraud or misrepresentation or mistake.
- Legal Objective
A contract or an agreement may adhere to the above principles but can only be legal and/or binding if it is made for a legal purpose. A contract or an agreement entered for any performance of an illegal purpose is considered invalid or void-ab-initio.
An entrepreneur aiming to be successful, shall work on creating a strong legal structure by establishing well drafted Contracts and/or Agreements complementing the vision of their startup. Below are some of the core Agreements that entrepreneurs need to put into place to avoid obstacles:
Depending on the choice of entity, and with due consideration to mutual trust and understanding between the founder and the co-founders of a startup, a founder’s agreements is executed to incorporate a corporate entity. This agreement clearly sets out in the guidelines for each entity in order to achieve the desired startup structure. The agreement also encompases the information related to equity invested, ownership of intellectual property and exit options.
A start-up needs vendors who can assist them with critical operations of start-up which are not in the area of expertise of the entrepreneur. A vendor agreement covers various aspects such as the scope of work, tenure, roles, responsibilities and payment options.
Entrepreneurs should draw a clear employment agreement and offer letter when hiring an employee. This ensures that employees understand what is expected out of them and also explicitly explains the terms of employment.
Trademark related Agreements:
Such an agreement sets down the rightful ownership of an intellectual property. An agreement of this kind is useful since an intellectual property is one of the key factors that attracts investments for the startups.
Joint Venture Agreement:
A Joint Venture Agreement is signed by two or more entities to collaborate on a particular business without losing their individual legal identities.
Non-Disclosure Agreement states that information pertaining to a start-up is confidential, and the extent of disclosure restricted to third parties. Confidential information includes trade secrets, business plans and software codes.
A Non-Compete Agreement ensures that the parties do not compete with the each other. It limits the possibility that knowledge gained by any stakeholder will be used in the future to compete against them.
Contract of Sale/Purchase:
This contract binds the seller and the buyer to their duties – the duty of the seller is to deliver the goods and of the buyer to accept and pay for them in accordance with the terms of the contract of sale.