Startups are the life seed of development and growth of a nation and individuals. Entrepreneurs with high-risk propensity take upon themselves to incorporate their idiosyncratic ideas into practical life and create an empire through their hard work. There are many vital areas that play a role in shaping a successful business.
Law is one such aspect that plays a significant role in every step of forming and executing business activities. Legal documents are essential; their requirement is initiated before the business commences and continues after the winding-up process. Every stepping stone involves some commitment to the law as it lays down the principles for ethics, operation, and a startup’s existence. The lack of knowledge about the essential legal documents can lead to legal intervention in the long run and hinder the business’s success.
This article enlists the six most essential legal documents you might need before starting your business.
1. MEMORANDUM OF ASSOCIATION
A memorandum of association is also called the charter of the company. It is a prime legal document that defines a company’s scope of business and other essential details.
No company can be incorporated without a memorandum. According to Lord Cairns, “The memorandum is as it were, the area beyond which the action of the company cannot go ; inside that area the shareholders may make such regulations for their own government as they think fit.” It contains seven clauses, namely: Objects clause, name clause, registered office or situation clause, liability clause, capital clause, association clause, and nomination clause.
2. ARTICLES OF ASSOCIATION
Artiles are the rules and regulations of the company. They are created with the intent of governing or overseeing the internal affairs, behavior of employees and employees, and the usual functions of a business. They contain the guidelines for the managerial personnel of the company and the powers of the directors and officers. The articles also deal with the rights o the members among themselves.
Articles are the controller and regulator of the officials in a company. They lend guidance, and he helps them in carrying out their day-to-day affairs and internal matters. The articles are framed with the view to executing the objects in the memorandum of association.
3. BYLAWS
To have a strong core, rigid bylaws need to be formulated for the internal affairs, the code of ethics inside the organization. The efforts of all the individuals should be harmonized as one to reach the goal of the company. Bylaws act as a guide to solve matters like conflicts, disputes among departments, select leaders, and establish personnel’s authority. Bylaws should focus on deciding people’s voting rights and taking decisions like electing new directors, members or taking up debt from some institution.
4. Founders Agreement
When several people decide to work together, they bring their ideas and the attitude, temper, likes, and dislikes with them. Every founder in the company has a different interest and perspective on things. This might sometimes create disputes inside the organization. mIn order to maintain the relationship and decorum of the company, all co-founders should sign an inclusive operating agreement. This Agreement should lay down the standard structure for solving conflicts. This Agreement also defines the connection between the founders and that all their actions will be directed towards achieving a common goal.
5. NON DISCLOSURE AGREEMENTS
NDAs are a critical legal document fo0r any organization, whether new or old. A business runs on confidentiality as it handles incessant amounts of sensitive information daily. In such cases, any slip up from a client or member may lead the hard work of many into the drain. Any employee, investor, or client should always be subjected to sign this document to ensure that your ideas and data are safe when communicated with them. This contains the following-
What information is termed as confidential?
Repercussions of not maintaining the confidentiality
Who owns the information?
Period for which the confidentiality is to be maintained.
6. BUSINESS PLAN
This is the pillar on which the business sustains. Many businesses ignore the importance of a proper business plan. This is not only essential for starting up a business but also to gain funds from financial institutions and filing tax returns. A business plan needs to contain all the information that leads to the formation of your business, it is basically a business but in written or visual form. When we apply this plan practically, it is what leads to a successful business.
These documents are certainly not the only thing you need to start a business. It would be best if you researched various other aspects like marketing, financing, staffing, etc. However, legal documents are what make the existence of your business legal so put in the extra effort to always maintain them like all the other documents.
