Law firm focusing on the tech industry
As a business owner, you are probably over the moon about having brought your business ideas to fruition. Whilst your achievement is absolutely fantastic, such unbridled enthusiasm can make you forget about some arguably less exciting, yet very important legal matters to contend with when running a business.
In this article, we identify the legal documents that are essential to organise when establishing a strong legal grounding for your business – a foundation that enables you to expand with confidence:
Memorandum of Association & Articles of Association
Once your business idea is gaining traction, it is time to officially set-up your business. You will need a Memorandum of Association and Articles of Association, both of which are essential founding legal documents for every business in the UK.
The Memorandum of Association is a legal statement signed by all initial shareholders agreeing to create a company and become members of that company. This document is mandatory and must be drafted correctly because it cannot be amended once the company has been legally founded.
Meanwhile, the Articles of Association specify how a company is to be governed and what its internal rules are. This document includes provisions that set out how directors will make decisions regarding day-to-day tasks whilst running the company, and it formalises other decisions that are not referred to in the Shareholders Agreement.
A Shareholders’ Agreement is a legally binding contract amongst the company’s shareholders. It lets them know about their rights and obligations, and establishes rules about share ownership and share transferring – all in order to provide clear solutions to contentious scenarios that may arise in the future.
In contrast to the Articles of Association, a Shareholders’ Agreement is a confidential document that does not need to be filed at Companies House. Because of this, it can be a more appropriate document in which to discuss sensitive commercial matters such as the assignment of intellectual property rights within the company, the company directors’ own financial compensation, or any other matters that may need to be kept confidential.
Terms & Conditions (T&Cs)
Terms & Conditions, also known as Terms of Service or Terms of Business, are the key to ensuring both you and your clients know exactly where you stand, legally and commercially, at any point whilst you are working together.
Although agreements are often negotiated in good faith, and sometimes without concrete terms, this makes things difficult in the event of emergent difficulties. Common complications include: a missed deadline for service delivery, a late payment, or any number of miscommunications regarding the scope and nature of the work being presented to your company by a client. Trying to assign responsibility and organise rectifying action in these circumstances can be a long and arduous process. With clear T&Cs, both parties will know exactly where they stand at all times in the event of such situations.
Companies must also meet some minimum legal requirements for providing information about themselves, and these can be organised within your Terms and Conditions. These information requirements are more stringent if your company operates online, and additional obligations can also be placed on you if you are dealing with consumers.
Non-Disclosure Agreements (NDAs)
A Non-Disclosure Agreement (often referred to as an “NDA”) is a legal agreement used to prevent someone from disclosing information about another person or company.
In the business context, NDAs are usually used to protect trade secrets (like processes, formulas or other internal approaches that you wouldn’t want your competitors to copy) or ideas that are still in the works (like business plans, designs for a new product or code for a new app). NDAs are also used to protect the terms of a business deal that’s still being negotiated.
Intellectual Property Assignment Agreement
If managed correctly, intellectual property (or “IP”) can be a hugely valuable company asset, but ensuring that you have the right IP protections in place is important for maximizing the potential of IP for your business. It is also important to be aware of who owns IP by default and, when the default position isn’t preferable, to construct an agreement that specifies otherwise.
The assignment of intellectual property (IP) transfers the rights for and ownership of relevant IP from one person to another. This is particularly important for avoiding legal consequences when an individual, such as an employee or founder, created intellectual property before becoming a part of the company. An IP assignment agreement transfers any rights to the IP created by an individual to the company as a whole, and this kind of agreement can be applied to IP including trademarks, patents, logos, and designs. Issues regarding IP can also be addressed with a robust clause in the Shareholders’ Agreement or within your company’s employment contracts.
The contents of the documents explained above will vary depending on the specifics of each business. To avoid legal issues, they need to be drafted by specialist lawyers and tailored to your business.
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Our legal commentary is not intended to be a comprehensive review of all developments in law and legal practice. Please seek legal advice before applying it to specific issues or transactions.