Creating a startup is an art. It requires not only creativity but also legal awareness. Every founder should know about five vital legal documents that form the basis of a successful business.

1. Founding agreement

The first step to the stability of your business is a founding (shareholders’) agreement. This document is necessary because:

• Regulation of mutual relations. The shareholders’ agreement defines the mutual rights and obligations of shareholders and founders. This avoids misunderstandings and conflicts.

• Conflict prevention. The contract establishes conflict resolution mechanisms and determines the exit procedures of founders or shareholders in case of a difference of opinion.

• Distribution of powers. The founding agreement defines the distribution of powers between the participants, specifying who is responsible for which aspects of the company's management.

• Investment attraction. Investors often require a founding agreement to indicate professionalism and readiness to solve potential problems.

2. Company bylaws

The bylaws is a fundamental document that can be compared to the "constitution" of your business. The charter should include:

• type of company,

• the size of the authorized capital

• the amount of reserve capital in case of its formation

• par value and total number of shares

• the number of each type of shares placed by the company, etc

3. Contract with employees

Creating a contract with employees is the key to a transparent and honest culture in your startup. Such an agreement establishes mutual expectations and obligations, protects intellectual property, and defines rules for confidentiality and competition.

Regardless of whether specialists work remotely or in the office, the employment contract must establish:

• work schedule

• vacation time

• lunch breaks

• options if the employee did not use vacation or weekend, etc.

4. NDA

A non-disclosure agreement (NDA) is an essential business document that governs the sharing and retention of confidential information between parties, often between founders and employees.

The NDA must contain:

• Definition of terms. This is important to determine which data is confidential.

• Obligations of the parties. A precise formulation of responsibilities helps to avoid disagreements and misunderstandings between the parties. When obligations are clearly defined, it is less likely that the parties will interpret the agreement differently.

• Term of validity. Determination of the period during which the obligation to store confidential information applies

• Liability for violation. Determination of legal consequences in case of breach of the agreement

• Jurisdiction and procedure for resolving a legal dispute and determining which court or jurisdiction will resolve disputes under the contract.

5. Agreement on intellectual property

This agreement aims to protect the company's intellectual property, especially when employees or freelancers develop innovative products or inventions during their work.

Imagine a young technology company developing a unique artificial intelligence technology for pattern recognition. In the early stages of business development, founders focus on software development and algorithm creation but do not define clear terms regarding intellectual property rights.

Developers who have made substantial contributions to the development of algorithms are beginning to assert their intellectual property rights by pointing to the lack of an explicit agreement regarding their contributions. When a company becomes successful and becomes an object of interest for investors, a problem arises. During negotiations with potential investors, it becomes clear that the company cannot prove its right to own intellectual property, which is a crucial asset.

As a result of the disagreements, investors lose interest in the deal, and the company faces the risk of lawsuits from developers demanding a share of the product's success.