Startup Company Legal Documents: Everything You Need to Know
Startup company legal documents are important to make sure you are incorporating your business legally.3 min read
Startup company legal documents are important to make sure you are incorporating your business legally. These required documents allow customers, the government, and members of the public to look at basic information about your business and verify you are following the local laws and organized properly. There are a number of government-mandated documents, and also a few others used to protect your company from legal disputes with employees, competitors, or shareholders:
- Constitution of a Company
- Articles of Incorporation
- Intellectual Property Assignment Agreement
- Operating Agreement
- Non-Disclosure Agreements
- Employee Contracts and Offer Letters
- Shareholder Agreements
- Stock Purchase Agreement
- Statutory Books
- Technology Assignment Agreement
- Invention Assignment Agreement
The Constitution of a Business
Once you've decided to incorporate, the first document you'll prepare is the Constitution of the Company. This document was previously called the Memorandum and Articles of Association. It needs signatures from your initial shareholders. It's often considered the company's charter and is publicly accessible. There are several required elements in your Constitution:
- State your legal name and business address
- Summarize your main business objectives
- Initial financial information
- Define shareholder relationships
- Liability clause that states shareholders are only liable for business debts up to their investment amount
- Company assets, amount of capital, how it's allocated between shareholders, and types of shares initially offered (typically applicable to larger companies only)
The Constitution is a contract between shareholders and the business. It must set out the rights and duties of all shareholders. It outlines business regulations and provides guidelines on the governing of the company. The Constitution is different from the charter though. The charter gets filed with the Secretary of State. It authorizes the number of shares and the par value.
Articles of Incorporation
All startups must also be a formal business entity. You can opt for something like a sole proprietorship, but that can result in personal liability and hefty tax bills. Each business organization type has pros and cons, but many businesses with multiple shareholders will form a C corporation. To form a corporation or LLC, you file articles of organization with your local state.
Bylaws and Operating Agreements
Corporations should have a set of bylaws. These establish internal company rules that apply to important topics:
- Leadership selection
- Handling of disputes
- Rights and powers of shareholders
- Voting thresholds for important decisions
- Selection of corporate officers and directors and their duties
Operating Agreements apply to LLCs. They set forth important details of business operations:
- LLC Management
- Distribution of profits and losses
- LLC owners' (called members) rights and responsibilities
- Buy/sell clause
Non-Disclosure Agreements, or NDAs, identify information deemed confidential and discuss the use or disclosure of information. They are very important to protect sensitive company information not for release to the general public, like marketing plans or financial data. Anyone privy to confidential records signs one.
Shareholder Agreements and Stock Purchase Agreements
The law doesn't require the use of shareholder agreements. However, while not publicly accessible, they are very valuable in ensuring fair treatment of shareholders Bylaws define the relationship between shareholders and the corporation whereas shareholder agreements define the relationship between other shareholders.
Stock purchase agreements occur between shareholders and the corporation. They set forth the amount of stock for purchase, the price, and what the payment method is. These are either restricted or nonrestricted. When shares vest over time, using a restricted agreement is appropriate. Nonrestricted ones are for the regular stock purchase agreements. Essentially, you pay for your shares and they are yours now.
During the course of your company's life, you must record all legal structure changes in your business, in your statutory books. They can include changes like directors, company secretary, company name, and more. They are kept at the registered office and the public can view them during business hours. In the event the business sells, these company books are given to the new owner.
Intellectual Property and Technology
Inventions may require an Intellectual Property (IP) Assignment Agreement, which can help attract investors for a startup company. There are two types of Intellectual Property Assignment Agreements:
- Technology Assignment Agreements — Assign IP created before the company forming; some individual developers may keep individual rights or they often sell for cash or equity
- Invention Assignment Agreements — Assign IP ownership of any new work product created by employees once the business is formed; the company owns all IP portfolio rights.
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