New businesses underestimate the need for legal documentation. This is a foolish attitude because having the necessary agreements in place can save not just money, but your business as well.
When you’re starting out, your business will be geared largely toward finding a fit for your product or service in the market. During this time, legal paperwork is often sidelined as it may seem unnecessary. But documentation goes a long way toward protecting the interests of the business and the owners. Many of them, you’ll find, need to be in place from the very beginning. Here are the documents most commonly needed by new businesses or start-ups.
Terms of Service
You need to intimate your customers of all the terms under which you are serving them through a terms-of-service agreement. This will set the legal relationship between the user and the service provider, particularly by placing limitations on what can and can’t be done with your content and excluding you from liability in case your content is incorrect.
Such an agreement is legally binding and must be in a prominent location on your website (usually, it goes in the footer of all pages).
In addition to the terms-of-service agreement, you may be required to or wish to have users see additional disclaimers (with regard to price, warranties, guarantees, etc). Such disclaimers are important as they ensure that your customers are fully aware of the terms of purchase.
Memorandum of Understanding:
As a new business, particularly if you’re business model is untested, your partners and suppliers may want to sign an MoU, rather than a formal agreement. This is because an MoU is not legally binding and, therefore, it just outlines the relationship. Once a definitive set of conditions can be agreed upon, an agreement can be signed.
If you’re running an app that connects customers with any vendors, you need to have a vendor agreement with each of them. This agreement will stipulate the conditions under which they must perform work. It should comprehensively cover various aspects, such as the quality of goods supplied or service provided, duration of the contract and the terms and mode of payment.
Service Level Agreement
A service level agreement (SLA) is a formal agreement between service provider and user, laying down a measurable framework for the provision of that service. For example, if you’r an ISP and wish to state that your service will have a downtime of 2% over a month, this will be in the SLA. It will also include things like support response and resolution times.
An employment contract addresses the full terms and conditions of employment. Start-ups often don’t have such documents in place for their early hires and this can cause major problems in the long run.
You should even sign an agreement with freelancers, particularly if they are going to do work that creates intellectual property. This is because the owner of IP, in the absence of an agreement, will by default be the freelancer and not your business.
Also Read: Why Set Up A Business In India
When you’re talking to investors and clients, do have them sign an NDA before you show them any of your data or processes (you should even include this in employment contracts). All this information needs to be confidential, even if it doesn’t appear at first how the person you are interacting with will exploit it.