Getting all the legal paperwork in place is difficult for businesses. Here we have compiled a list of 30 important business documents that businesses need.
- Docs for Getting Funded/Venture Capital
- Docs to Facilitate Inside Operations
- Docs to Facilitate Outside Operations
- General Operating Docs
One of the most difficult parts of starting a business, and one of the least intuitive, is the paperwork piece.
To help alleviate some of that mystery, we've put together a list of some of the most important business documents that will give you a quick reference point after you incorporate.
Docs for Getting Funded/Venture Capital
Cap Table: Like the name implies, a cap table is a table that gives an overview of the founders' and investors' percentage of ownership, equity dilution and value of equity in each round of investment. This kind of detail becomes important for attracting and ensuring new potential investors.
Due Diligence Request List: If you are in discussions about a potential acquisition, you will want to get your hands on a due diligence request list and start amassing the documents on that list. It may sound premature, but opportunities for acquisition come quickly, and you want to be prepared when they come to you.
Investor's Rights Agreement: When the business and the universe of stockholders is still small, investors typically want to have some sense of their "rights" that their investment has bought them. Typically these include things like inspection rights, right of first offer, etc.
Management Rights Letter: When dealing with venture capitalists, you may have to sign a management rights letter that allows the VC to attend board meetings and otherwise have access to company management. This is typically traded for large amounts of infused income for VC business expertise or both.
Model Legal Opinion: As part of a company's founding, it is typical for attorneys to express their opinion on the action of the company, and as part of due diligence, it makes sense to both do things in complete order and get legal opinions to that effect.
Right of First Refusal (ROFR) and Co-Sale Agreements: The ROFR and co-sale agreements work together to make sure that shareholders cannot liquidate shares without the majority or preferred shareholders having the chance to purchase those shares. It is important to give notice to all shareholders of the mechanics here, as liquidations are not easily reversed.
Shareholder Agreements: For smaller companies or startups, the relationship between the shareholders is governed by BOTH the companies founding documents PLUS a shareholder agreement. This gives initial shareholders more flexibility when their number is smaller and they're more likely to be able to hold each other accountable because of proximity/familiarity. There are loads of templates available for these, but consult your attorney.
Stockholder Consent: This is a form of written consent form that allows stockholders to act without a formal stockholder meeting. It's typically most useful when the stockholder group is small.
Stock Purchase Agreement: This is the definitive agreement that outlines the ownership and allocation of the stock/shares of the company, so this document will need to be drafted by an attorney and continuously updated to match your company's circumstances.
Term Sheets: A term sheet is a brief outline of the terms surrounding any potential funding partnership that has legal effect until the parties reach a final agreement. It's a great way to get an agreement in place quickly.
Voting Agreement: A voting agreement outlines the terms under which one or more of the pool of shareholders can act jointly. From the start of your business and throughout its development, this can play a key role in your success.
Docs to Facilitate Inside Operations
Board Consent: Any startup should operate with the cooperation of their board, and in order to do so, you should establish a standard mechanism by which you receive the board's consent. This can a number of different forms, so make a decision based on your circumstances.
Intellectual Property (IP) Assignment Agreement: The Intellectual Property vested in a startup is often one of the most important parts of the value inherent in a business, so it is a best practice to assign that value among the founders/co-founders/investors (if relevant) right at the beginning. There are lots of forms available to help you do this.
Invention Assignment Agreement: In the same way that technology is developed for a business and the IP rights needs to be assigned to the business, when new inventions are part of a startup, you need to make sure that invention gets assigned to the business right away.
Operating Agreement (Founder's Agreement): This is one of the standard forms that should be completed before any significant business is done. Founder and co-founder disputes are inevitable, and they are much more difficult and messy when you don't have a clear understanding of initial equity splits, who brought what property/skills to the partnership, who owns initial IP, etc.
Technology Assignment Agreement: Development of proprietary technology is often part of a startup environment, which makes it vital to have a standard form that assigns the IP rights for any technology developed FOR the business TO the business.
Docs to Facilitate Outside Operations
Advisor Agreement: Same as above, you want to make sure that anyone who is operating as an advisor to your business knows the boundaries of their authority. You don't want them obligating you unduly.
Consulting Agreement: When you have to deal with (or employ) consultants to help you get your business done, you need to have them sign an agreement that outlines what they can and cannot do in regards to your overall venture. Many businesses have been penalized for the actions of consultants who acted like employees. Make sure you aren't one of them.
Employee Contracts and Offer Letters: These documents are often thought of as a luxury for new businesses, but after your first employment dispute, they will become standard. Take the time early on to define the roles, responsibilities and rights of your employees, and it will keep your business interests protected in case of a disagreement.
Indemnification Agreement: Startups dealing with business-to-business transfers typically have some sort of indemnification agreement once their product is in someone else's hands. This transfers any liability associated with your product to the entity that is now in control. Liability transfer can also happen from business to individual, but is typically more closely curtailed. Consult your lawyer.
Liability Release Forms: No matter what form of business you run, it's really a best practice to put together a standard release of liability form that you can pass along to anyone using your services. There are lots of forms available for this, but you should speak with your lawyer about particularizing the forms to fit your needs.
Non-Disclosure Agreements (NDAs): NDAs protect new businesses in lots of ways. Initially they give you the freedom to discuss business opportunities with potential employees, developers that may add to your portfolio, etc without the worry that your proprietary information will be compromised. NDAs also give you the freedom to keep your current workforce from going to a competitor and taking your business with them. Use them early and often.
Ownership of Assets: It's important to divide up both the business elements and the assets of the business. For instance, if you started a printing business and one person put up the commercial printer, you should sign an agreement making that ownership clear. If you don't, a dissolution could put that complete ownership at risk.
General Operating Docs
Annual Report and Financial Report Templates: Finally, after incorporation, you will be required to provide annual reports (financial and otherwise) to your state to maintain a current certification. The time to develop those templates is right away. There is no easier way to lose your "Good Standing" with your state corporation commission than to fail to file your annual corporate reporting.
Business Bank Account, Business Credit Card and Clear Separation of Business and Personal Assets: This is a bit outside of strict "documentation" but is absolutely critical for establishing a bright line between your personal and corporate finances, so immediately establishing corporate bank accounts and credit lines is an early step that can help to protect both you and the corporation in case you run into trouble down the road. Timing is critical in this step, because the dates of corporate formation and the dates of corporate account creation can be important to taking advantage of the safety you are afforded by the corporate legal structure.
Business Licenses: This is a situation-specific set of documents, but don't set your business back by failing to get the necessary licenses to do business in both your state or locality.
Details on what personal information is being collected on your website.
- Information about what options the customer has about how/whether data is collected and used.
- Details on how customers can see what data has been collected and how to correct it if necessary.
- Details about how policy changes will be communicated.
Registered Agent: This is a broadly applicable requirement, but once incorporated, you should immediately identify and establish a registered agent within your state of incorporation. Lots of corporations use the initial filers (typically you) as registered agents, while others prefer to rely on a professional registered agent that will provide a reliable and consistent contact outside the corporation.
These (and other) documents will establish a solid foundation upon which you can rest a solid business. Not only is document management and development a good idea, but they will also be a part of the public-facing side of your corporation and will be either a good or bad referral for your business. Make sure you take control of the story these documents tell.
If you need help with legal contracts and documents or if you are starting or running your business, you can post your question or concern on Lacoona’s marketplace.