In this article ‘Different Agreements for Startup’, we will look into a few sparkly important agreements startups shall consider as a prominent aspect before making cardinal decisions. Introduction Risk Management is the quality most new entrepreneurs are likely to incorporate in their business models before broadening their horizons. This risk also includes a varied range of complex legal… Read More »

In this article ‘Different Agreements for Startup’, we will look into a few sparkly important agreements startups shall consider as a prominent aspect before making cardinal decisions.

Introduction

Risk Management is the quality most new entrepreneurs are likely to incorporate in their business models before broadening their horizons. This risk also includes a varied range of complex legal problems the start-up is prone to face if the basic legalities are not accurately taken care of before establishing the company.

The most naive mistake the entrepreneurs make is to run into verbal agreements and contracts in such haste that they seem to lose track of the relevance of documentation in the legal field and it’s an intersection with the functioning of these startups. In this article, we will look into a few sparkly important agreements startups shall consider as a prominent aspect before making cardinal decisions:

1. Shareholders Agreement

A shareholders agreement is an agreement that provides for all the shareholders and members of the company/organization with rights and obligations of equitable nature and also makes sure that no partner is sidelined or kept out of the loop in sharing of assets, profits and losses. It also gives the business a proper structure of functioning in order to eradicate all the burden mounting on one partner in case others choose to walk out if the business is leading to failure.

In the case of a no shareholders agreement being signed, both the shareholders and the company are susceptible to a wider and major range of conflicts and disputes. It may even lead to the deconstruction of the business as a whole.

2. Investment Agreement

This agreement is signed between the company, its shareholders as representatives, and individuals whose interest aligns with investing the shares of the company. The facet of the investment can vary with the nature of funding any company organization needs and this specific nature of the agreement will determine the negotiations the company and its shareholders can reach while the terms of investment agreements are being decided upon.

The clauses of these agreements mitigate the rights and obligations of shareholders post the shares being transferred or sold. In the lack of such agreement, the riposte involving risks while investing in an unprofitable company will be subject to plausible discourse.

3. Non Disclosure Agreement

Non-disclosure agreements are usually made between two parties/organizations/individuals to protect their intellectual property and confidential information. It ensures that information provided between two parties over a period of time is not revealed to a third party. NDAs are created in different legal frameworks to safeguard the misuse of information given between business mergers, acquisitions, and coalitions.

The main issue with these agreements is that if a loophole is discovered, the costs might be heavy. To protect your company, it is highly advised that you need the other party to sign an NDA before releasing any secret information. A signed NDA will secure your sensitive data and help you build stronger business ties with your customers.

4. Service Agreement

A service agreement is a contract that sets out the conditions and obligations between any company or organization providing any service and a customer taking benefit of it. The clauses of this agreement specify the nature and mode in which the service will be provided, the parties’ obligations, the remuneration or payment, and the services to be supplied. It also includes the scope of services both the parties have agreed to serve and enjoy as to dislocate any third party claims, a set of limited liabilities is posed upon both signing parties in such a case. This agreement makes sure that both the service provider and the customer do not end up in a state of dispute and the interests of both are served to a justifiable extent.

5. Independent Contractor Agreement

This is a type of agreement existing between an established business that has certain tasks and roles to be played by individuals who are not their full-time employees rather they require contractors on a freelance basis which is cost-effective and time-saving as well. This freelance basis, here, means that the individuals are hired for a fixed time in which they are required to fulfil a set of duties assigned to them and signed in the contract. These contractors are hired independently to avoid long-standing relationships.

The course of business ends as and when the duties are completed and fulfilled to which both the parties agreed on a prima facie basis. Such agreements are dominantly used by startups and newbie businesses to get a maximum retainer and be efficient.

6. Lease Agreement

Though co-working spaces are more in trend even for corporate giants, yet many newly founded businesses look to rent independent working spaces. This type of agreement is signed when a certain working space is lent out in the form of commercial property, between the landlord and the other party. However, a license to occupy a coworking space for a specific period of time allows you to solely utilize the property. It does not need a commercial leasing agreement.

7. Employment agreement

An employment agreement is a legally enforceable contract that is signed by both the employer and the employee before the course of employment is commenced. It outlines the policies, responsibilities, and duties that both the employer and the employee are obliged to adhere to. It also contains any extra requirements that are required due to the nature of a particular hiring scenario.

Additionally, an employment agreement remains in effect for the duration of the signing employee’s work relationship. A situation may arise where either party is unsure of how to proceed in a workplace matter. In this case, an employment agreement, in conjunction with established company guidelines, can direct both the employer and employee on the appropriate course of action based on the language contained in the agreement.

Conclusion

Experience is, without a doubt, the finest teacher, and you will need a great deal of assistance from your mentors in your early years. It is a common notion that the majority of entrepreneurs in India’s fast-expanding startup business are technically oriented and not efficiently aware of the legal requirements that their company shall meet in order for a smooth functioning which leads to inevitable consequences in the real world. Contract negotiating skills provide founders a significant competitive advantage, as well as a larger likelihood of being successful in their business ventures.


References

  • Harper James Solicitor, How to write an investment agreement, Available Here
  • CS Shubham Katyal, 10 Essential Legal Documents for Startups, Available Here
  • Law Depot, Service Agreement FAQ – the United Kingdom, Available Here

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Updated On 2022-01-07T11:54:12+05:30
Mayank Shekhar

Mayank Shekhar

Mayank is an alumnus of the prestigious Faculty of Law, Delhi University. Under his leadership, Legal Bites has been researching and developing resources through blogging, educational resources, competitions, and seminars.

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