Putting Some Basic Agreements in Place at the Beginning Can Be Key to a Successful Business
Entrepreneurs face many challenges when starting a new business. Taking the time to put to structure the relationships between the founders, and to document key relationships with partners, contractors and employees are items that always seem to be on the “to do” list. However devoting the time and resources to take care of these tasks early on can be critical to the success of your business.
It is not unusual for founders to verbally agree at the beginning that they will each own an equal percentage of the business. Months or years later, one of the founders has created the majority of the intellectual property or done the majority of the work, and feels that the other founder(s) deserve little to none of the ownership interests in the business. What happens then? What happens if one wants to sell and the other(s) do not? The problems created can lead to stifling the progress of the business, or even dissolution. Business owners that have taken the time to sit down with advisors to come up with a plan and document the relationship in a stockholders’ agreement are much more likely to avoid these problems down the road.
Similarly, entrepreneurs need to document their relationships with their employees and contractors. Confidentiality agreements can help keep your employees and contractors from walking out the door with all of your trade secrets. Confidentiality agreements can also be crucial for entrepreneurs that are partnering with third parties. While you would like to be able to trust your partners, it is not unheard of for a “partner” to take a good business idea and walk away to develop it on their own.
Assignments of intellectual property rights are crucial to protecting your rights in the work product your independent contractors produce for you.
A non-solicitation of customers agreement may be appropriate to keep key sales people who are out building relationships with customers from taking those customers to a competitor. Similarly a non-solicitation of employees agreement may be appropriate to keep management level employees from leaving and taking all of your best employees with them.
If you plan to seek outside funding, getting these agreements in place is crucial as they will be required by any third parties who may provide funding for your venture. Entrepreneurs who get these agreements signed at the time their employees and contractors are hired do not have to worry about trying to track down departed personnel to get agreements and assignments after the fact, or have to pay additional consideration to get those agreements.
While there are many “form” documents available on the internet, these documents were either written for the generic company or for a specific situation. Successful businesses are not generic, and if your business is the same as the competitor’s whose form you used, you already know that you need to find a market advantage to succeed. Sitting down with experienced advisors early on to talk through your goals and plans can result in getting agreements that are tailored to your businesses specific needs and allow you to focus on growing your company.