Internal and external startup contracts come in handy when you plan on securing your startup business. Oral contracts, although enforceable, cannot be proven and therefore can lead to costly startup issues. Internal startup contracts include loan agreement, rental agreements, shareholder agreement, intellectual property assignment agreement, and confidentiality agreement. External agreements cover independent contractor agreement, sales agreement payments to be received, work that has to be done, supplies that have to be delivered, and other such business transactions.
Primary Element Of Startup Contracts
A contract is integral to any startup and follows the basic contract law. The essence of contract is that it is a bunch of promises. Every enforceable contract has three essential elements:
- Offer - When one party promises the other party to offer something in exchange for something.
- Acceptance – When the second party accepts the offer made by the first party.
- Consideration – it simply means “bargained for exchange”. Giving a token or a proof is sufficient to make the contract enforceable.
When Should Your Startup Create Contracts?
Written contracts are your proof that your business entered into a particular agreement with a third party. Without them, if you fall into trouble, no one is going to take your word! Not only do contracts come in handy for litigation purposes but also to serve as a record. You should create contracts during the following scenarios:
- Seeking funds for expanding your startup from angel investors and venture capitalists
- Provide services to a third party for which you seek compensation
- Situations that require you to disclose essential business information which can be protected by having intellectual property contracts
- In case your intellectual property is compromised, you can seek legal action based on available documentation containing clauses of secrecy of trade secrets
- To avoid any sort of business confusion and misunderstanding in business that could threaten the integrity of the business
Important Internal Startup Contracts
When you have many partners in your business, you can form a corporation by entering into a shareholder agreement. With such an agreement in place, you can restrict movement of partners in and out of the business without proper procedures or at will.
Intellectual Property Agreement
When your business involves a secret recipe, ingredient or procedure that is the essence or key for your business success, you can protect it through an Intellectual Property Agreement. Intellectual property can be in the form of copyrights, trademarks or patents that sets your stamp on that particular element and protects it from being copied.
When you are hiring employees into your company, you need to have this contract signed so that employees maintain confidentially of company information.
Service Agreement/License Agreement
These agreements come into play when you offer your products and services for sale. These contracts are set up with customers. For example, license agreement is needed when you license software to a customer but prevent them from further selling it.
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Mark is writing tips for Startup business. If you are looking for contracting services for your startup business then look at what Chesterfield group has to offer