Your team, your creativity and your hard work create the value. These legal documents won’t make your tech startup valuable; these legal documents will ensure that your team’s hard work doesn’t go to waste.
1. Corporate Charter
This is generally the first document in the life of a corporation, detailing the major components of a company such as its objectives, its structure and its planned operations. If the charter is approved by the state government, the company becomes the legal corporation that will hold the IP your team is developing. There’s nothing cool about this document, except that you authorize the amount of your corporation’s shares and set par value.
Bylaws are the most important legal documents of any organization, whether it is a corporation, association, or partnership. Bylaws outline in writing the corporate governance of your startup (day-to-day rules for the corporation’s internal administration and management), providing comprehensive guidelines to keep things running smoothly. Startups often fail to draft bespoke bylaws. Don’t be one of these startups, unless you are 101% sure that your startup will never have any corporate governance issues and I’m 101% sure that no one should be 101% sure of that.
3. Shareholders Agreement
Shareholder agreements are contracts between some or all of the shareholders of a company in which they agree to regulate the exercise of some of their rights as shareholders. A shareholders agreement is a supplement to the company’s constitution and will generally regulate shareholders rights – like a shareholder’s right to transfer his or her shares, rights of first refusal, redemptions upon death or disability, etc. – and regulate the management and operation policy of the company.This is another overlooked startup document which can be invaluable in the event a co-founder leaves your startup. A shareholder agreement should cover all aspects of the relationship and the mechanics by which the company is to be operated. The agreement should also protect the respective interests of the parties to the agreement and outline dispute resolution provisions in the event of any disagreement between the parties.
4. Stock Purchase Agreement
The Stock Purchase Agreement is the definitive agreement that finalizes all terms and conditions related to the purchase and sale of the shares of a company. It is made between each shareholder and the corporation, determining how much stock will be purchased, the price of the stock, and how the payment will be made (cash, IP, or another form or combination of consideration). Stock Purchase Agreements come in two forms: Non-restricted and Restricted. In Non-restricted stock purchase you pay for your shares, they are yours. Restricted stock purchase agreements are used when a co-founder’s shares will vest over time. The Stock Purchase Agreement should match exactly to the terms stipulated on the letter of intent.
5. Intellectual Property Assignment Agreement
In a technology business, it is often the value of the intellectual property (IP) assets that the investor finances or the purchaser pays for. It is very important to have “clean” ownership of any intellectual property that is critical to the operation and success of your business.
The technology assignment agreements deal with IP that was created by the IP owner before the owner became a shareholder of the corporation (such as IP created by founders pre-incorporation). Signing a technology assignment agreement, the shareholder assigns to the company (sells, transfers, conveys, etc.) intellectual property to the corporation. A typical technology assignment agreement will list the IP to be assigned to the corporation on an exhibit to the agreement, with the shareholder representing the sole owner of the IP. The shareholder has to agree to execute all necessary documents to effectuate the IP transfer. The technology assignment agreement can be referred to in the stock purchase agreement, as an IP transfer to the corporation can be consideration for the stock purchased by the shareholder.
The invention assignment agreement works to assign IP created by founders post-incorporation over to the corporation. The shareholder acknowledges that all IP developed is the property of the corporation – not the property of the individual shareholder.