Ensuring a startup starts and keeps well

Startup is the buzzword in the economic world today. Ventures starting small and reaching Unicorn status soon thereafter have become the benchmark of success in this age – such a scenario is every entrepreneur’s dream.

However, the road to success is full of policies, procedures and contracts, to speak legally! Howsoever, small or informal your setup may be, you cannot afford to ignore or avoid legal issues, compliances and consequences. Ignorance of law is no excuse.

Legal documentation (i.e policies, procedures, contracts etc.,) is one of key parameters in a startups journey that requires special attention. This will ensure:

a) compliance with applicable laws;

b) alignment of internal policies with legal and business requirements; and

c) mitigation of risk and consequent losses.

To achieve aforesaid objectives, a startup has to cultivate a compliance culture (within and while dealing with outsiders). A simple, straightforward way is to draw a specific list of policies and contracts in sync with legal and business requirements.

Each startup has to deal with its employees, business partners, third party vendors etc., to keep its business not only running but growing as well. To make this to happen, it has to chalk out policies and contracts specifically applicable to them.

An illustrative list of policies and agreements is as under:

For Business partners:

1)????Co-founders agreements: Co-founders agreement is the first and foremost agreement of a company which will be entered between the founders of a business ventrue. ??This Agreement will define the roles and responsibilities of co-founders in the management of the Company, their capital contribution and capital payouts to them, liabilities of each founder, termination rights etc.

2)????Shareholders agreement: If a company is formed by shares then a Shareholders Agreement is most important document the founders should equip themselves with. This Agreement will include provisions such as operations, control and management of the company, respective rights of company and shareholders particularly for additional capital contribution, inviting non-founders to contribute, buyout and sell out of shares among founders, distribution of assets and liabilities in case of company dissolution, exit options for shareholders etc.

3)????Partnership Agreement: If a venture is formed on basis of partnership, then it requires a partnership agreement which is an agreement between the partners. This Agreement will contain provisions such as roles and responsibilities of partners, liabilities of partners, capital contribution of each partner, distribution of profit and losses, exit options for a partner, removal of a partner, modes of dissolution of partnership?etc.

4)????Distributor and seller Agreements: If the company’s business model involves a distribution network or reseller network to sell its products or offer its services then such company needs a distribution agreement or reseller agreement. Typically, it will be an agreement between the company and distributor or reseller (as applicable). This Agreement will define scope of appointment of distributor or reseller, rights of distributor or seller to sell or offer products/services of a company, authorized distribution territory, right to use marketing/branding content of the company, maintenance of stock, commission for acting as a distributor, infrastructure required as per company policies etc.

5)????Intellectual property agreements: ?Companies will be required to execute intellectual property (IP) agreement for different reasons (e.g., to buy /sell / license its IP to third parties or the other way round). Payments terms, scope of use of IP, permitted use, confidentiality, sub-licensing, ?etc., are crucial provisions.

6)????Vendors/suppliers agreements: This is an agreement between a company and third party vendor or supplier of materials/products/services which required for a company to run its business or to ramp up its production capacity. Scope of engagement, pricing terms and conditions, acceptance of product or service, scope of usage of service or product, engagement of subcontractors, product/service warranty, remedies for defects in a product or service, etc., are among major provisions of?vendor/supplier agreements.

7)????Investor Agreement: Every business needs funding to expand its business operations or to save the sinking ship (i.e collapse or closure of a company).?This is where investors (other than founders) come into play to infuse funds into the company. Investor Agreement is the Agreement between the Company and investor.?Investor Agreement contains certain critical provisions such as right of investor to appointment board of directors, to attend company meetings, to cast voting at company meetings, to exit from the company, representations and warranties of the Company and shareholders to investor and investor to the company etc.

8)????Collaboration Agreement: At times two companies need to collaborate with each other to work on an agreed project – In this scenario, companies need to enter into a collaboration agreement defining scope of collaboration, contribution of each party to the project, roles and responsibilities of each party, project deadlines or milestones, ownership of intellectual property, reporting schedule, project management etc.

9)????Service Agreement: Service Agreement is an agreement between a service provider and its customer to provide services. A company can be a service provider (when offering its services to customers) and customer (when receiving services from a third party service provider).?Service Agreements include mainly provisions of acceptance or rejection of services, service warranty, remedies for default in service, termination of service, suspension of service, refund of service fees, rights of customer to use service, scope of services, service timelines etc.,

For employees/consultants:

Offer letter: Offer letter is the first document issued to an employee offering employment to such employee with certain details such as date of joining, probation period, salary structure etc.

Employment Agreement: Employment Agreement is an agreement between the Company and its employee. Employment Agreement mainly contains terms of employment such as designation of employee, scope of work, roles and responsibilities of employee, employment term, employment termination, salary and other related benefits of employee, quota of leaves etc.,

?Work for hire Agreements: In some cases, company will engage independent consultants on a work for hire basis, in such cases, company needs to enter into a work for hire agreement. Typically work for hire agreement includes provisions such as scope of engagement of consultant, fees of consultant, ownership of IP result of work for hire assignment, assignment of IP to company,?etc.,

Agreement for subcontracting: In some cases, company needs expertise of a subcontractor to perform a work or project. A company may enter into a subcontractor agreement with subcontractors in such circumstances. A Subcontract agreement primarily includes provisions of scope of subcontractor, roles and responsibilities of a subcontractor, quality assurance of work of subcontractor, termination of subcontractor, milestones for completion of work/project and payment of subcontractor fees etc.,?

?Policies for employees:

?Timings: Policy detailing working timings and benefits (if any) for working beyond working hours

?Leaves and holidays: Policy with specifications of full quota of leaves and holidays with a specific division of sick leaves, general leaves, holidays (national and international) etc.

?Maternity and paternity:?Policy relating to number of holidays permitted for employee on occasion of being a father or mother and any other benefits offered in this regard.

Statutory payments and deductions: Policy with respect to Payments and deductions with respect to gratuity, provident fund, social security fund etc.,

Sexual harassment: Policy to establish process for handling matters relating to sexual harassment which includes constitution of committee, process of escalation of complaint, protecting dignity of harassed employee etc.,

Code of conduct:?Policy with specific emphasis on professional and business conduct for employees at work place, while handling with clients, colleagues, business partners etc.,

Work from home: Policy to permit employees to work from home on temporary or permanent basis.

Own device policies: This is a policy that will permit the employee to use personal device to perform work related activities subject to the permitted limitations.

Moonlighting policy:?Policy which typically either does not permit an employee to work for anybody (other than for the company) during the tenure of employment or it does permit to take projects or engage with clients beyond their work commitments.

Needless to say, all these policies have to be in compliance with local laws.?

Other agreements:

Non-disclosure Agreement: Non-disclosure Agreement is an agreement between two parties to protect the confidential information shared by one party with another party. This is a universal document that comes into play when a company having confidentiality discussions with any body (i.e employees, business partners, third parties etc.,). Non-disclosure agreement contains provisions of definition of confidential information, carveouts to confidential information, protection period of confidential information, permitted disclosure of confidential information, required or requested disclosure of confidential information, return or destruction of confidential information etc.,

?Other Policies:

Security / Confidentiality protocols: Policies designed to deal with access with different areas of work by different persons and to protect the confidentiality nature of information/data handled by the company.

Cookies policy: A cookie policy is designed to let end users of a company website that their personal data will be accessed to help them to make customized use of the website and let them know how their personal data will be processed.

Privacy policy: This policy deals with handling, processing, using, and storage of personal data of end users of a website.

Website Terms and conditions :?A company should stipulate a set of terms and conditions of its website to protect itself from any unwanted or surprising liabilities or claims.

?Refund policy: Certain companies need to articulate a refund policy for customers or end users in case of return of goods or products or otherwise products or goods do not work as specified in the supporting documentation.

?These agreements and policies are only illustrative and will differ from case to case. However, they are quite crucial from legal and compliance perspective to ensure a company is properly secured from legal, business and economic risks and is in compliance with all applicable laws.

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