Key document checklist for in-house counsel guiding a startup business

There is little more exciting than starting or growing a new business. There is simply energy and a sense of purpose that eludes most well-established, larger companies. Of course, those “big” companies were once start-up companies themselves — they simply succeeded where many others failed. One reason they survived the primordial ooze that all companies struggle to extricate themselves from is that they were smart enough to ensure they had the right legal documents in place from the start.

Sure, having a great product, business plan, and excellent customer service help — a lot — when starting or growing a company; there is much to be said for being prepared on the legal side as much as on the financial or business side things.

As the legal counsel of a new business, you are expected to provide confident guidance and preparation that will set the business on the right path. Regardless of where the business is on its initial trajectory, smart business people and their in-house lawyers understand the importance of a handful of key legal documents and what they mean to the current and future success of the enterprise.

Not sure where to start? With Business in a Box: templates, checklists, toolkits, practice notes, and more are already in place, and just a mouse clicks away!

Here is a checklist of key documents, along with Business in Box resources, you should have in place to increase the odds of business success:

Articles of incorporation/Operating agreement

Depending on the type of entity you choose (for example, corporation or limited liability company), you must prepare proper articles of incorporation or an LLC operating agreement to get the enterprise off the ground. These documents set out the name, address, purpose, and basic structure of how the business will operate and, more importantly, are necessary to provide the limited liability that most owners and shareholders seek when setting up a new business.

See Business in a Box: Start-Up Company Tool Kit.

By-laws

Another “table stakes” document for corporations is the by-laws, also known as the document that sets out the nitty-gritty of how the corporation will run on a day-to-day basis and the composition of the board of directors requirements for meetings, rights of the various owners, etc.

See Business in a Box: General By-Laws Template.

Capitalization table

Sometimes referred to as a “cap table,” this is simply a document that sets out how many shares there are in the company, the types of shares (common or preferred), and who owns them — and how much they own.

A cap table is critical if selling the company, taking on new investors, or just ensuring the shareholders know who owns what is on the agenda — as shares count as votes in most corporations or, in the case of preferred shares, provide their owners with certain rights and benefits not available to the holders of the common stock.  So, it’s important to have an accurate record at all times.

Shareholder agreement

These are especially critical in start-up or small company situations because there is usually a group of minority shareholders (that is, shareholders who own small percentages and who can always be outvoted by the majority shareholder), and such an agreement spells out the rights and obligations of all the shareholders, preventing misunderstandings, litigation, and outright chicanery.

Equally important, shareholder agreements set out what happens to stock in the company when someone dies, wants to retire, or otherwise wants to sell their interest to a third party.

See Business in a Box: Stockholder’s Agreement template.

Intellectual property assignment/Disclosure Agreement

If the start-up or small business develops any technology or intellectual property, such an agreement can save a lot of heartache by ensuring that all employees disclose any inventions they claim to own before starting with the company and they agree that any inventions or intellectual property they develop while an employee of the company — using company time or resources — belong to the company and not them.

You may also hear this referred to as a “work for hire” situation.  Regardless, getting clarity about the ownership of IP is a must-have for any new or growing company.

See Business in a Box: Employee Confidentiality Template and Employee Proprietary Rights Acknowledgment Template

Business Ethics/Compliance Policy

Many start-ups and small businesses stumble badly regarding culture and setting the right tone — and end up in the news for the wrong reason. Not only can this lead to a “black eye” for the company, but lawsuits and reluctant investors are also almost sure to follow.

That is why it is important to come out of the gate with a strong business ethics policy that lays down the rules and expectations for everyone, including policies on sexual harassment, discrimination, antitrust, etc. Having a fulsome policy and investing in training and enforcement will pay off in problems avoided and culture you and your investors can be proud of, and that attracts and keeps top talent.

See Business in a Box: Business ethics.

Corporate minute book

Because things move quickly and there is generally a desire to “just get on with it,” start-ups and small businesses often find they have forgotten or ignored the procedural niceties of running a corporation. Failing to observe the required meetings, minutes, and resolutions — along with mixing personal and business finances — can allow adversaries to pierce the corporate veil and do away with the limited liability, which is one of the fundamental reasons people create a corporation in the first place.

A corporate minute book is the “bible” of the company, holding the articles of incorporation, the by-laws, stock certifications, and the cap table, along with the board of director resolutions approving corporate actions and the board of director meeting minutes — including the required annual meeting. Creating and maintaining a corporate minute book is an excellent way to ensure that your corporation is compliant with the law, remains in good standing, and can provide the certainty an investor wants to see in governance.

See Business in a Box: Formation and Starting Up: Start-Ups and Small Businesses Collection

Employment agreements

A key area where many start-ups and small businesses drop the ball is ensuring that proper employment agreements are in place. While it may seem unnecessary because “everyone gets along great,” that strategy only works until everyone doesn’t get along so well.  And that’s when it is too late to try to put the agreements that should have been in place from the start.  Here is a partial list:

• Employment agreements/letters with the executive team and key employees setting out compensation, equity, what happens in the event someone quits or is fired, etc.
• Restrictive covenants — agreements or sections of employment agreements dealing with non-competition restrictions, non-solicitation (employees and customers), and confidentiality.
• Invention assignment/disclosure agreements whereby everyone agrees that intellectual property developed while employed by the company using company time or resources belongs to the company and, more importantly, discloses any inventions they claim to own heading into their employment with the company so there are no surprises about who owns what.

See Business in a Box: Agreements Collections

Terms of Service/Privacy policy

Another often-ignored area for start-ups and small businesses that operate e-commerce websites are well-planned terms of service — the contract in place with consumers or users of your website — and a privacy notice/policy, which is a document that sets out how the company will treat personal data that comes into its possession.

The former can save the day, especially when it includes limitations on damages, forum clauses, arbitration provisions, and other key contractual protections. The latter is likely required by statute now (think CCPA or GDPR), and the failure to have one can be problematic — and having an inward-facing policy is critical to ensure everyone understands what can and cannot be done with personal data in the company’s possession.

Even more problematic is having a privacy policy and not following it, which can lead to lawsuits, fines, and other headaches. It is critical to have these documents in place from the beginning.

See Business in a Box: Website Terms of Use template and Website Privacy Policy Template

Source: legalthompsonreuters.com