Legal Documents for New Business: 7 Essentials

Introduction

There is a significant amount of work involved in starting a business and it extends beyond simply registering your business name and launching a website.

In the excitement and stress of getting a business off the ground, many founders either forget or delay in putting proper legal documents in place. Often, these documents are not in place until a problem arises.

However, the first 90 days of setting up a business are among the most important when it comes to laying your foundations, setting up your operations and procedures, protecting your assets and reducing legal risk.

While every business is different, there are several core legal documents that most, if not all, new businesses should have in place from the outset to build strong foundations for future growth and success.

This article acts as a general checklist of the 7 legal documents that new businesses typically require. However, please note that this is a general guide only and the documents you require may vary depending on your business, your industry and your requirements.

1. Shareholders Agreement

If a company has more than one owner, a shareholders agreement is one of the most important documents to implement from the outset. Even if the company only has one owner, a shareholders agreement should also be put in place, particularly if there is an intention to bring on investors / other shareholders.

A shareholders agreement sets out how the business will operate and governs matters such as:

• Decision-making processes;
• Voting and meeting procedures;
• Director responsibilities;
• What happens if a shareholder wants to exit the business;
• Dispute resolution procedures; and
• Restrictions on transferring and issuing shares.

Many founders begin businesses informally with friends or family and assume that everyone is aligned on the business. Even where friends and family are not involved, disputes commonly arise amongst shareholders of a business when expectations are not properly documented from the outset.

A well-drafted shareholders agreement can help avoid costly disputes and uncertainty in the future and can assist in ensuring that the business is well managed from the outset.

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Shareholders Agreement Package

2. Employment Agreements and Contractor Agreements

Employment Agreements

Hiring employees may be something that you do early on or something that you do once the business is more established.

In either case, hiring employees without a properly drafted employment agreement can expose a business to significant risks.

Employment agreements should be properly drafted and outline matters including but not limited to the following:

• An employee’s duties and responsibilities;
• Renumeration, benefits and award coverage;
• Confidentiality obligations;
• Intellectual property ownership;
• Termination provisions; and
• Post-employment restraint provisions.

While it may be easier to rely on verbal arrangements or generic online templates, doing so can create uncertainty, inconsistent terms and disputes that can be costly.

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Employment Contracts Package

Contractor Agreements

In addition to or in lieu of employees, you may choose to engage independent contractors in the early stages of your business. However, just like employees, failing to document these arrangements can lead to several issues, including uncertainty and disputes regarding payment terms, ownership of work product and liability.

A contractor agreement should typically address:

• The scope of services to be provided by a contractor;
• Payment terms;
• Intellectual property ownership;
• Confidentiality obligations;
• Liability limitations; and
• Termination rights.

Consideration also needs to be given to the fact that simply calling someone a “contractor” does not determine your relationship with them. There is significant legislation and case law regarding contractors being classified as employees.

Businesses should ensure that their relationship with independent contractors is accurately categorised and properly structured to reduce the likelihood of disputes and liability.

3. Privacy Policy

If your business collects personal information from customers, clients or website users (amongst others), your business may require a privacy policy under Australian privacy laws.

Even if a privacy policy is not required by Australian privacy laws, it is best practice to have a privacy policy in place to ensure transparency and build trust with your clients, customers and/or users.

A privacy policy explains how personal information, whether collected through contact forms, mailing lists, purchases or enquiries, is collected, used, stored, disclosed and protected.

4. Website Terms and Conditions

One of the first things founders do when setting up a business is create a website.

However, while creating a website is at the forefront of setting up a business, many businesses overlook the importance of having website terms and conditions.

Website terms and conditions can assist in:

• Limiting liability;
• Protecting intellectual property;
• Regulating website use; and
• Establishing rules for purchases and/or online interactions.

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Website Legal Package

5. Terms and Conditions of Business and/or Service Agreements

For businesses that provide goods or services, terms and conditions of business and/or service agreements are critical in setting out the legal framework for customer and client relationships.

This is something typically overlooked by founders and many businesses operate without these agreements which can lead to uncertainty around payment, liability and service and product expectations.

Terms and conditions of business and/or service agreements, typically address the following:

• Payment terms and late payment rights;
• Scope of services;
• Limitation of liability;
• Warranties and disclaimers;
• Termination rights; and
• Dispute resolution processes.

Having clear and enforceable terms regarding how you provide goods and services to customers and clients can assist in managing risk, limiting liability, setting expectations and reducing the likelihood of disputes.

6. Intellectual Property Deeds of Assignment and/or Intellectual Property Licences

Intellectual property is one of the most valuable assets that a business owns. However, many founders incorrectly assume that their business automatically owns branding, content, software, designs or other intellectual property created by founders, contractors or third parties in relation to the business. This is not always the case.

Intellectual property deeds of assignment help formally transfer ownership of intellectual property to the business, while intellectual property licences allow businesses to legally use intellectual property owned by another party under agreed terms.

Each of these documents are important for all businesses, but are particularly relevant for businesses involving:

• Software or app development;
• Branding and creative assets;
• Online content;
• Proprietary systems or processes; and
• Collaborative commercial ventures.

Failing to properly document intellectual property ownership early can create major issues during investment, sale or growth stages.

7. Non-Disclosure / Confidentiality Agreements

In setting up a business, founders frequently discuss ideas, strategies and commercial opportunities with employees, contractors, investors and potential business partners.

When having these discussions, it is important that non-disclosure agreements / confidentiality agreements are in place to protect your business interests. It is important to note that as mentioned above, employment agreements and contractor agreements should have confidentiality provisions to protect the business in these circumstances.

A non-disclosure agreement / confidentiality agreement can help protect a business’ confidential information including:

• Business plans;
• Financial information;
• Customer data / client lists;
• Pricing models; and
• Intellectual property.

While a non-disclosure agreement / confidentiality agreement cannot prevent every misuse of confidential information that is disclosed, it creates clear legal obligations regarding confidentiality that can be enforced. Where confidential information is misused or unlawfully disclosed in contravention of a non-disclosure agreement / confidentiality agreement, the agreement itself typically provides important protection and enforcement mechanisms.

Conclusion

When setting up a business, the foundations you lay set the tone for how the business will operate moving forward. While founders are understandably focused on growth, sales and operations at the outset, investing in proper legal documentation early can help minimise disputes, clarify expectations and protect the business as it scales.

Legal documents should not simply be viewed as compliance requirements. When drafted properly, they are practical tools that help businesses manage risk, limit liability, protect assets and operate with greater certainty.

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