There’s a lot of preparation and legwork involved in starting a new business. As well as ensuring you have the appropriate knowledge and resources in place before your launch, you also need to ensure you have taken care of all your legal obligations. The following legal documents are essential for any startup to have in place before they begin trading.
Memorandum of Understanding
One of the first things you need to prepare when starting a new business is a memorandum of understanding. Your memorandum of understanding is a document you sign along with your business partners if you have any. It defines the terms of your relationship and sets out the common source of action that you are all following. These documents aren’t legally binding, but they are often a prerequisite for a legally-binding contract. In some cases, the contracts you and your partners sign will refer to this document.
The memorandum will confirm that you and your partners are mutually committed to a single goal and intend to work with one another in a particular way. In cases where you and your partners don’t know each other particularly well, this document can make unsure parties feel more relaxed about investing with you.
Another important purpose of the memorandum of understanding is to ensure that expectations are managed and aligned. Misunderstandings about what the business hopes to or expects to achieve in the short and long-terms can cause conflict later on. This memorandum reduces the scope for these misunderstandings to occur.
Memorandum of Association & Articles of Association
Like your other memorandum, this isn’t a legally-binding document in and of itself, but it may be referred to in legally-binding contracts you and your partners sign. Your memorandum and articles of association won’t come into play until you are ready to set up your business officially.
The memorandum of association is a written document that sets in stone your decision to form a company. In contrast, the articles of association set out the rules by which the company will be run and what your leadership structure will look like.
Together, these documents will define your business’s purpose and the rights and obligations that you and other managers, leaders, and owners have within the business. Both documents can be amended in the future without any trouble. They do not need to be drafted by a lawyer initially; when you incorporate a limited private company in the UK, you are automatically provided with model articles.
This is arguably the most important legal document for any new startup in the UK. It doesn’t matter how big or small your business is, you need to have a well-drafted shareholders agreement in place to ensure your business can operate smoothly. This document will define your shareholders’ rights and obligations and set out how much of the business they each own, initially anyway.
Shares may well change hands over time, and the total number of shares might also change. But without an initial shareholders’ agreement, you could find yourself embroiled in any number of easily avoided arguments with your partners.
Share division isn’t just about defining how much of the business your shareholders own; it is also important for making big decisions and decisions affecting the entire company. The portion of shares each person owns will usually dictate their vote’s weight in any important issues that require a shareholder or board of directors to vote.
Non-disclosure agreements are essential documents for any business that has secrets it wants to keep from its competitors. Non-disclosure agreements set out any topics or areas of discussion that signatories agree not to share with any party outside of the business. These documents are vital for protecting confidential information.
Whenever a business presents a new product, idea, or strategy to its investors, NDAs are common tools for ensuring that their competitors won’t get wind of the idea and undercut them or beat them to the punch. Failing to put NDAs in place can have severe repercussions for businesses and leave them with little recourse.
Directors’ Service Agreement
Directors play a significant role in the day-to-day management of a company’s affairs. It is therefore important to define their roles and responsibilities, particularly if there are multiple directors in the company. A directors’ service agreement is in essence an employment agreement for directors that sets out their duties towards the company. It should set out basic information like the director’s role in the company, salary, working hours as well as other important provisions such as termination and any other special provisions which may go beyond that which is applicable by law. A director should always act in the best interest of the company at all times and a director’s service agreement is a simple way of defining how the director should conduct themselves.
Once your business starts growing and you start taking on staff or employees, you will need an employment contract or agreement to define the relationship between the company and its employees. An employment contract is a legal requirement and without a written agreement, the default legal provisions which apply, tend to favour employees. It is therefore important to set out the role and responsibilities of the employment. Depending on the nature of business and the role of the employee, some companies will need restrictive covenants included in their employee’s employment contract. These provisions restrict the use of information by employees after their employment has ended to protect the business. They also include ‘non-compete’ clauses which are commonly found in employment contracts. However, restrictive covenants need to be carefully drafted otherwise they can be unenforceable. It is always best to have an experienced lawyer draft your employment contracts and any special provisions which need to be included to ensure they protect your business.
Terms & Conditions for the Supply of Goods or Services
It is essential that every startup has its terms & conditions clearly set out before they start trading. Your T&Cs are important legal documents, although there are many misconceptions about the legal weight they carry. Your terms and conditions cannot supersede laws, consumer rights etc, however, your T&C’s should be comprehensive; they should cover every aspect of the service you provide to customers and leave them in absolutely no doubt about how you operate and what they can expect from your business.
Your terms & conditions serve as a kind of mini-contract between you and your customers. If you fail to live up to the terms and conditions you set, your customers may have grounds for filing a complaint or even certain types of legal action. Similarly, if a customer makes a complaint about your business, your terms and conditions can provide you with legal cover. Provided your terms and conditions don’t contradict existing consumer laws or protections, your customers accept them when they use your business and cannot hold you liable for doing what you told them you would within the document.
No matter what type of business you are starting, it is essential to have all your legal documents in place as early as possible. Trying to run a business without the appropriate legal legwork taken care of can lead to unnecessary conflict down the road and make it much harder for you to take remedial action in the case of behaviour that would otherwise represent a breach of any of the above documents. These documents don’t just provide you with legal protection; they also ensure that you and your partners are on the same page and have the same understanding of your business’s long-term goals.
Website Terms and Conditions
Terms and conditions for your website are essential for any website owner. If drafted correctly they form an online agreement between the client and the business that outlines each party’s obligations and rights as well as providing guidelines on how to use the website. With most businesses now having an online presence, it is very important to have properly drafted terms and conditions on your website otherwise you could be exposed and liable for your website content and any fault that may arise as a result of its use. They are also very useful in protecting your intellectual property rights as well as your user’s data.
Starting up a business? Need help understanding of which documents to have in place, contact one of our legal team today to discuss how we can help you.