Basic Legal Documentation For All Businesses

Last Updated at: October 22, 2019
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When you are about to start a business, you must handle the creation of a legal person suitable to your industry. It is also a practical ploy to register a trademark at the earliest possible opportunity. It will be the best way to make sure that other companies are not able to violate your rights.

Businesses need to have legal documents from the very beginning. Whether for hiring, partnerships, proposals and disputes, you need to sign legal documents with the relevant parties to ensure your business is fully protected. Additionally, there are documents specific to your business, depending on whether you’re interacting with customers online or offline and you’re selling products or services.

If you need more pointers on government registrations, trademarks, patents or tax filing, browse a few services provided at Vakilsearch below

Disclaimer
A disclaimer is a statement from the company informing the user of the consequences of the same. The law mandates the display of a disclaimer in certain cases, such as the health warning on cigarette packs, but as a business you might find it necessary to include one, too. In case there is a risk or uncertainty attached to the product or service, a disclaimer becomes all the more necessary. Perhaps the most familiar disclaimer in the public sphere is ‘Mutual funds are subject to market risk. Read the offer document carefully’.

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Legal Notice
If you find that another entity is infringing your trademark, has copied your website design or has simply not paid you for a service you provided, you would need to send a legal notice. This is not just any document, but an intention to initiate legal proceedings against another party. You can also use it in the case of a bounced cheque.

Confidentiality Agreements: Non-disclosure, Non-compete & Non-solicitation Agreements
To protect confidential and proprietary information, such as intellectual property, ideas, business plans, software and trade secrets, businesses enter into non-disclosure agreements with parties to whom such information is being disclosed. This may be when you’re pitching a business idea to another party, hiring a senior employee and working closely with a partner. Companies also often enter into non-compete or non-solicitation agreements, or more likely, include them in hiring documents. The former prevents an employee from being involved in any other competing business or project for a specified period of time after leaving. This is to protect the training, expertise and knowledge imparted to the employee regarding the company’s business. A non-solicitation agreement restricts an employee from soliciting the company’s other employees or customers when he leaves. Again, this is to protect the client base and resources spent on employees and confidential information.

Hiring Documents: Employment and Freelance Agreements
People build companies. It is, therefore, important to have well-drafted hiring documents that protect both employees, consultants and freelancers of the company. The document governs the terms and conditions of employment, as well as rights and obligations of both parties. Employment contracts have provisions pertaining to salary, bonus, benefits, leave and termination. The consultancy and freelancer agreements, often used in the IT and creative sectors, would include a clause pertaining to ownership of new intellectual property.

Investment Documents: Founders’ Agreement, Term Sheet & Share Purchase Agreement
One of the most important documents for a company is the founders’ agreement. Founders tend to ignore it, but it’s crucial. It covers the vision of the company, short- and long-term plan as well as what happens in case of the death or exit of a founder. The founders’ agreement promotes clarity among the founders and minimises the risk in case of a dispute.

Once you are ready to get funded, you need to get your investment-related documents in order, starting with the term sheet. This is not a binding document, but lays down the outline of the understanding between two parties. It will include the investment amount, mode of payment, mode of security invested in, due diligence and pre-emption rights. This document forms the basis upon which the final agreements are negotiated and signed. Among the final agreements required upon procuring investment for the company is the shareholder’s agreement. This agreement is signed by the investors that are becoming shareholders. It clarifies the powers of shareholders and the rights of the company as an issuer of shares.

Collaborative Documents: MoUs, Franchise & Joint Venture Agreements
When a business enters into relationships with other businesses, one of the documents commonly entered into is a Memorandum of Understanding. It is a document that contains the basic understanding the two parties have reached for any project. It is often followed by a more formal, legally-binding contract.

Many companies, particularly in the hospitality industry, may also enter into a franchise agreement, which outlines the consideration to be paid by the franchisee, royalties and use of the franchisor’s brand name.

Another common business collaboration agreement is a joint venture agreement . You may be required to enter into a joint venture agreement if you are collaborating with a foreign company, which is investing through the 100% FDI route.

Opting for a joint-venture with like-minded companies is one of the smartest ways to grow your company. Your firm may not have experts to handle some aspects of business. You can get rid of these roadblocks on your way to success and progress by a joint venture.

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