Jan 11,2021 | 8 min read

"Why Are Agreements Essential For A Startup?" By Lawkhart Legal

Introduction

Establishing a new company requires a lot of planning and budgeting. So anyone who has started a business knows the importance of factual representation of ideas and expression. The startups face a lot, and they are closer to fall prey to the cons. Startups usually make many errors while operating, which creates a mess.

An agreement is essential for any business, either it’s a startup or an established business. Agreements usually protect the interest in the business. To have a written agreement is essential for a startup to avoid future liabilities or any frauds that may arise in future. Also, agreements limit up their liabilities, obligations, and rights.

Agreements that are crucial for any startups:

There are many agreements which are essential for any startups. Some of them are:

  1. Founders Agreement:

Every startup requires a founders agreement as it determines ownership, responsibilities, decision-making policies and operations. Startups generally make mistakes in not including some clauses that should be there in the founders’ agreement.

The main objective behind the founders' agreement is to avoid confusions that the startups may face. Also, startups can hire professionals for drafting a founders' agreement.

  1. Commercial Lease Agreement:

A commercial agreement is formed when a startup takes up a commercial premise or space for operating its businesses. It is signed between the property owner and the startups on a rental basis.

  1. Memorandum of Understanding (MoU):

MoU defines mutually agreed upon terms between two or more parties. It may be signed between the suppliers, employees, or founders. It is beneficial in terms that the parties already agreed to certain terms and conditions initially, which makes it easy to define each party's roles and responsibilities and forbids any misunderstandings.

  1. Service Agreement: 

Service Agreement is essential when the business is either getting service from any vendor, or the startup is itself a service providing company. It is essential as it defines the roles and responsibilities and scope of the service providers.

  1. Distribution Agreement:

Distributors are the one who is in direct contact with the customers. Being a manufacturer, it is impossible to reach the customers because the distributors are important for any startups. A distribution agreement is generally signed between the manufacturer and distributor to determine the distributors' roles and responsibilities, scope and area of distribution, quality and quantity of products, etc. It makes it easy for companies to avoid issues arising out of distribution activities.

  1. Sale of Goods Agreement:

It is essential for the businesses involved in the sale of goods. The agreement is essential for businesses to sell the product to customers, vendors, suppliers, merchants, etc. The agreement defines the terms of sales, responsibilities, liabilities of the businesses.

  1. Employment Agreement:

Employment Agreement is entered between the startups and the employees hired by them. It is essential because it defines the job roles, position, salary, leaves, or other employment information. So, every employee needs to sign it before joining the employment.

  1. Shares Purchase Agreement: 

A Shares Purchase Agreement is essential where a company has decided to raise capital by selling stock and shares of its company. 

  1. Non-Disclosure Agreement:

The non-disclosure agreement is important because it helps the startups to keep their information like marketing plans, business plan, etc. confidential. The parties involved here are partners, managers, employees, etc.

  1. Loan Agreement:

Sometimes the startups approach financial institutions to get financial assistance. Banks have their forms of loans agreements. The companies have their form of loan agreements. It defines the terms and conditions of payment, duration and other things related to the loan.

  1. Trademark License Agreement: 

The trademark license agreement is necessary for its owners or founders so that the company owns a trademark. A trademark distinguishes the products or services of one company from another. So in a startup, it is essential to get a trademark license agreement. The agreement sets down the rightful owner of the IP, his rights and duties, the rights that will be offered to the users of the brands, etc.

  1. Charter Documents: 

Charter Documents are the Memorandum of Association (MOA) and Articles of Association (AOA). The MOA includes information like share capitals, date of incorporation, members, liability, etc. On the other hand, AOA includes the regulations governing the company's management, such as general meetings, BODs, details of the voting rights, etc.

  1. Website terms of use agreement:

Nowadays, most startups are launched online. They sell their products through a website. In that case Website terms of use, an agreement is of utmost importance. The agreement is signed between the site owner, owner of the website and the buyers of goods and services from the website. The agreements contain limitations on how the site can be used, liability limitations, disclaimers, disclosures, copyright protection warnings, the jurisdiction where a dispute may be brought, etc.

Conclusion:

So, it is evident from the above-mentioned list that there are various agreements that startups need to maintain to carry out their functions smoothly. Having a written agreement is essential as it could save the cost of litigation for the future also.

Webliography:

  1. Essential Legal Contracts For Your Startup: Can You Draft Them On Your Own? Retrieved from: https://blog.ipleaders.in/essential-legal-contracts-for-your-startup/amp/
  2. Why are agreements essential to any startups? Retrieved from: https://www.lawyered.in/legal-disrupt/articles/why-are-agreements-essential-any-start/


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ABOUT THE AUTHOR


Raghavendra Mehrotra

The law firm “LAWKHART LEGAL” is a full-service law firm and takes pride in being looked upon as "ONE STOP SOLUTION" catering extensively in Criminal, Civil and Consumer Litigation, Corporate law, Dispute resolution including Arbitration, Intellectual Property and Family Laws. We believe in making legal services efficient, effective, affordable and hassle-free by providing pragmatic, technically practical and innovative legal solutions to our clients. We observe the highest level of professional

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