Startup’s Contracts and Agreements
Startup’s Contracts And Agreements – Specific Agreements
Agreements with investors
Agreements with co-founders
Agreements with employees or consultants
At one time or another, start-ups will require to get into various contracts and agreements with different stake-holders in the course of business. Other kinds of agreements are described below:
Non-Disclosure or Confidentiality Agreements for Start-ups
Since startups are driven by ideas and innovative thought, these ideas and subsequent practices may become important Confidential Information of the business entity and therefore, call for an immediate need for protection as they amount to being intellectual property of the business entity. The proposed Start-Up Law in India aims to properly define contarcts and laws pertaining to trademarks, copyrights, patents and other IP rights. The rationale involved here is the protection of any information that, though of illegitimate value to others, can result in gains of similar nature to the entity illegitimately using such confidential information at the expense of the start-up’s loss. Strong Non-Disclosure Agreements (NDAs) or Confidentiality Agreements are imperative for protecting such Confidential Information.
Employee Agreements for Start-ups
Start-ups may eventually have to hire employees, whether on a consultancy basis or otherwise. Therefore, getting into binding employment contracts or agreements is a must for all business entities today. Such contracts and agreements, which usually contain the job description and the scope of employment of the employee in the organization, are instrumental in avoiding any dispute that may arise in the future with respect to employees.
Funding Agreements for Start-ups
As Start-ups usually get their initial funding from Angel Investors or Venture Capital firms etc., it is advisable to get into Funding agreements with them to avoid any unnecessary dispute or exploitation at a later point in time.
Non-Competition & Non-Solicitation Agreement
Start-ups, during the course of their business, will hire employees or contractual workers from time to time. To ensure that the trade secrets and valuable intellectual properties of the business entity is preserved and not misused by employees or contractual workers and consultants, non-compete or non-solicitation clauses may be added to the employment contract and/ or the contract entered into with the contractual worker or consultant. Alternatively, separate Non-Compete or Non-Solicitation Agreements may be entered into. The purpose of such non-solicitation clause or agreement is to put restriction on employees and/ or consultants from directly or indirectly soliciting or enticing an employee, customer or client to for their benefit.
For determining the enforceability of a non-solicit clause or agreement, courts are generally of the view that such clauses shall normally be enforceable, unless it appears on the very face of it excessively harsh or one-sided.
Work for Hire Agreements or Contractor Agreements
Start-ups may minimize their labour cost and energy by hiring contractual workers or consultants. Pursuant to this, start-ups can enter into Work for Hire Agreements or Contractor Agreements for contractual consultants who are hired for a specific purpose and/ or for a temporary period of time, especially in relation to aspects like software. The idea of such agreements is to ensure that the intellectual property and other trade secrets created for the business entity is retained by the hiring party rather than the creator of such intellectual property.
Equipment / Technology Lease Agreement
Start-ups may not have enough resources initially for equipment or technology. Therefore, equipment or technology may be taken on lease for a limited period so as to save funds and channelize those funds in some other profitable direction. For this purpose, start-ups may consider entering into appropriate lease agreements.
Strategic Alliance Agreement
The partners of a Start-up may enter into strategic alliance agreements with each other so as to decide various strategies in advance and have a clear goal in the very beginning of the business.
Start-ups can into vendor-supplier contracts for the supply of raw materials of various natures essential to carry on the intended business. Start-ups can enter into Vendor-Supplier contracts for the purpose of getting quality raw materials and for negotiating the price initially to avoid future disputes. The terms of such supply and payment should be laid out as clearly as possible in the contract.
It is of utmost importance for a startup to draft carefully a partnership agreement in case of a joint venture in order to avoid any ambiguity that might occur in future. As far as agreements with employees are concerned, such agreements should expressly and with crystal clarity draw the bounds of such an employment pertaining to the duration, remuneration, fringe benefits, if any, and similar information of like nature in order to avoid any complication leading to complaints or litigation at a later point in time.
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To know more about Start Up Laws in India, Read below