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Running a business

Legal documents needed to start a business

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    Founding your own business can be an exciting venture which is driven by your passion or your idea for a product or service. With this excitement comes a degree of risk which is important to control and reduce as necessary.

    It can be difficult to manage this risk whilst in the midst of setting up the business and the many demands that are made on a business owner’s time on a daily basis.

    Knowing the documentation you need to set up a successful business is vital. This article will set out and summarise some of the core legal documents that a new business should have in place for maximum protection.

    Articles of Association

    It’s a legal requirement for every company that is set up to have Articles of Association. This is essentially the company rule book as it sets out how the company is to be run and how decisions are to be made by the directors of the company. 

    There’s a standard form of Article which can be used when a company is set up at Companies House. This document can be changed to suit the particular needs of the company as the company develops and requires more shareholders or investors. 

    The Articles of Association can be used to set out the procedure to provide staff incentives such as share options in the company. They’ll also deal with aspects such as the number of directors required for there to be a valid company meeting.

     Shareholders Agreement

    Where the Articles of Association sets out the way in which the company is run and how its directors are to make decisions, the Shareholders Agreement is similar in nature and applies to the conduct of the shareholders. A Shareholders Agreement will set out the way and for how much the company’s shares are sold, transferred and issued. 

    In the case of small companies where there are only two shareholders, it’s advisable to ensure that each decision requires a unanimous decision to be made. Not having these types of terms in an agreement could later on, cause disputes and further legal problems. Use a Shareholders Agreement Template to outline the terms of the agreement and if the terms are complex, make sure to get a lawyer or legal professional to review the contract.

    Joint Venture Agreement

    A joint venture is where two companies wish to work together in collaboration on a project. A joint venture may happen where one company has a product and requires the assistance of the other company to access a new or particular market. 

    The agreement will set out how the parties will  work together to achieve their objective. It’ll detail the roles and responsibilities of both of the companies involved, will set out the rules for one company approaching the other’s customers and will set out how this is to take place. There will also be provisions for how the project is funded and any revenue generated split.  

    Supply of Services Agreement

    The Supply of Services Agreement is a contract that sets out what the business is to do for the customer or the other contracting party. It’ll set out various important aspects of the provision of goods. 

    It’ll  set out in a clear and precise way what goods are to be supplied under the agreement. It’ll also deal with the liability of the parties in the event that the goods are not delivered or are defective. In some cases, the agreement will seek to limit the liability of the business. an agreement like this will also deal with the title of the goods and when these pass to the other person to the contract. 

    This type of agreement will deal with any intellectual property and will set out a licence for any circumstances where the IP is used with permission by the other party to the contract. 

    Statement of Work

    A Statement of Work (or SOW) is primarily used by the people in charge of managing a project. The SOW will set out the scope of the project, the time that it’ll take for the project to be undertaken and any targets to be met in the project. It’ll also set out how much the project will cost and what will be produced at the end of the project.    

    Non-disclosure Agreements

    A Non-disclosure Agreement (or NDA) is very important in circumstances where a business has confidential information that it needs to share with another party, in order to conduct its business and wishes for that person not to disclose the information to any third party.

    This is a legally binding agreement which prevents confidential information from being shared without the knowledge of the person that is providing the confidential information. 

    The agreement will define what the confidential information is and how long the agreement  will last. It’s used in cases where a new business partner, investor or agent is being bought on board to assist with the business. It’s an important way of keeping business’s ideas protected and confidential from any competitors.    

    Director’s Service Agreements

    Directors have certain duties to a company and so these duties are not normally covered in a standard employment contract used for non-director employees. An agreement like this will set out how long the director is to provide their services to the company, and what benefits/bonuses they’re  entitled to. 

    It’ll set out what the scope of their duties to the company are and whether they’re limited in their decision making powers. The agreement will need to have provisions in it to prevent the directors from setting up in competition with the business when they leave. The agreement will also set out any notice period and whether they’re able to be put on garden leave.

    A Director Service Agreement is important in the instance where a senior director is contracted to work in the business as the agreement will provide certainty to the senior director about the terms under which they’ve been appointed to the business.

    Get legal assistance from LawBite

    Seeking legal advice at the start of your business journey is advisable as it’ll assist in protecting the business from an early stage and help the business develop and flourish in the future.

    The author of this article is a consultant contract lawyer at LawBite, a digital legal platform that specialises in assisting sole traders, startups and SMEs with their legal issues. Find out more and book a free 15 minute consultation with an expert business lawyer.

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