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4 Legal Agreements No Startup Should Be Without

By Pantea I. Fozouni

September 7, 2020

What legal documents does my startup need?

When starting a new business, putting the appropriate legal agreements in place is crucial for protecting your key assets and relationships. Yet it’s common for many new business owners to put off—or even entirely overlook—creating such agreements. You might not even know which documents are most needed.

The following 4 agreements are among the most essential legal documents for just about every business. If your business is missing any of these foundational documents, or you need the agreements you already have reviewed to make sure that they don’t just protect you, but also enhance the experience customers, clients, and team members have with your business, contact us.

1. Business Entity Agreements

One of the first decisions to make as a startup is how to legally structure your business. To minimize your personal liability and maximize tax savings, we often advise clients to set up their business as a limited liability company (LLC) or a Corporation. In either case, you’ll need to draft the proper business entity agreement to stipulate how the business entity will be governed and run.

For an LLC, this agreement will be in the form of an operating agreement, while Corporations require corporate bylaws. Both legal documents define the rights and responsibilities of the business’ owner(s)—LLC owners are known as “members” while Corporation owners are “shareholders). These agreements establish the provisions for running the company, both on a daily basis and in the event one owner dies or becomes incapacitated, while also stipulating what will happen if the company fails.

Additionally, these agreements outline how business communications will be handled, along with how disputes will be resolved. Business owners sometimes think they don’t need to take these documents very seriously—or even bypass them entirely—because the owners are friends who can simply figure everything out as they go. But giving short shrift to these agreements is a big mistake.

Conflicts are inevitable in any business, and even if everyone gets along, you still need to plan for events like the company’s eventual sale or dissolution, as well as incapacity, death, or retirement of an owner. For this reason, you should always consult with an experienced business attorney like us to help you create these documents and never try to draft them on your own using a generic online document service.

We can advise you on the entity structure that’s right for your business and create the operating agreements or bylaws to ensure your company’s governing documents cover everything needed.

2. Employment Agreements

If you anticipate hiring employees and/or independent contractors, you’ll need to create comprehensive employment agreements or independent contractor agreements, and require every person who works for you to sign one—no matter how long you’ve known the person you are hiring. In fact, it becomes even more important when you are hiring friends or family. These documents clearly detail the terms and conditions for the working relationship, so your team members clearly understand what’s expected of them.

These employee agreements and/or independent contractor agreements should also include provisions that protect your intellectual property (IP). All the time, we see agreements that put business owners at risk of their employees or independent contractors leaving and taking the company’s most valuable assets with them. Sometimes they can steal customers, or in a worst-case scenario, they may even own the IP you’ve paid them to create for you.

3. Intellectual Property Assignment Agreements

You must ensure all intellectual property brought into the company by the founders before startup, as well as any IP created by owners, employees, and contractors once the business is up and running, is owned by the company, not the individuals. Transfer of IP ownership is accomplished using intellectual property assignment agreements.

Whether included as a clause in the employment agreement or created as a stand-alone document, these agreements “assign” the company ownership rights to all intellectual property assets—patents, trademarks, and copyrights—used by your business. These agreements are especially important when working with independent contractors. Although you typically have automatic ownership of IP produced by your employees while working for you, contractors generally retain full ownership rights to their work, unless they’ve signed an agreement stating otherwise.

We can help you create proper IP assignment agreements for everyone involved with your business, so you can retain total ownership and control of your IP assets.

4. Sales and Service Agreements

What many business owners don’t understand is that your client service agreement or product purchase agreement is a key part of your sales process. If it’s not smooth and integrated, you’ll breach trust and may not get the sale.

Whether you sell products, provide professional services, or a bit of both, you should have legal agreements in place clearly laying out the rights and responsibilities of both your business and its customers/clients. These agreements will outline the key elements—price, payment and credit terms, tax responsibilities, warranties, and liability limitations—for all products your company manufactures or services you offer.

When we work with our clients to prepare these agreements, we’ve always got an eye on the overall sales process of the business, and the agreements we prepare enhance that process, building trust and confidence in your products and services.

Don't Do It Yourself

With so much at stake, never trust generic, fill-in-the-blank documents you find online to create your agreements. Always consult with an experienced lawyer like us to ensure these vital agreements are properly created and maintained.

Whether you need brand new agreements created, or need us to review ones you already have in place—even those drafted by another lawyer—contact us.

We offer a complete spectrum of legal services for business owners and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer you a LIFT Your Life And Business Planning Session, which includes a review of all the legal, insurance, financial, and tax systems you need for your business. Schedule online today.

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Palm Desert Law Group, APC

72960 Fred Waring Dr., Suite 11

Palm Desert, CA 92260


Tel: 760.674.7175

Fax: 760.610.6641

Email: info@palmdesertlaw.com

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