The 12 legal documents every start-up business needs
You’ve had a great business idea. You’ve completed thorough market research and costings. And you have a clear, practical business plan in place. Next on your to-do list? Getting your legal documentation sorted.
We’ve put together a list of the legal documents every new business needs to think about during its start-up phase.
Company Formation
If you’ve decided to structure your business as a company, you’ll need these documents.
1. Certificate of Incorporation
To start a company you will need a certificate of incorporation – creating one can be done online here on the Companies Register website (you’ll need to create an account first). To complete the certificate you’ll need details of your company name, as well as names and consents from your intended directors and shareholders.
2. Constitution
Once you have incorporated your company, you may wish to file a constitution. This is a public document which sets out the rules that the company will be run under. It’s not a requirement to have a constitution. However, it can be useful for attracting potential investors as it provides transparency.
There are other ways to structure your business such as sole traders or partnership – there are pros and cons to each structure so it’s important to get advice from your professional advisors on what structure is best for you.
TIP:
OneCheck is an online tool provided by the NZ Government that allows you to quickly check whether your intended company name, web domain, trademark and social media usernames are available.
Intellectual Property (IP) & Confidentiality
Now that you’ve got your business plan, you may want to discuss it with different suppliers, a potential co-partner or early-stage employee, or investors. So how do you protect your great idea and plans while allowing these discussions to take place?
3. Non Disclosure Agreement
One method to provide confidentiality and protect ideas is a Non-Disclosure Agreement (NDA). This document should:
Detail the exact nature of the confidential information
Require that the confidential information given remains confidential for either an indefinite period of time or set time period.
Cover intentional and accidental disclosure of the confidential information
Detail any exclusions (for example if two parties who have both signed the NDA want to discuss the idea with each other)
4. Intellectual Property
To protect your business idea, visit iponz.govt.nz to get some guidance on which intellectual property is right for you.
TIP:
Trademarks, Copyright and Patents are other options for all types of IP, including ideas, products, technology, artworks, designs and even plant varietals. Business NZ also has a Basic Business IP Checklist you can use to see what registered and unregistered protection is available for your IP.
Funding
The vast majority of businesses will require a certain amount of funding to get started, and potentially to cover an extended period after trading begins. Depending on the source of your funding - even if it’s from your own pocket - there are legal documents which record and formalise these investments.
5. Loan Agreement
Most people will need to put money into their business to cover the initial or set-up costs. Your business may need to borrow funds from a bank, from you, or from another lender. The loan agreement will record the details of the loan including how much is borrowed, the interest rate and when payment is due.
6. Subscription Agreement
This document is used to record a cash-for-equity investment in your business. It details the terms and conditions of the purchase and sale of shares in the company, and the price at which shares will be issued to the investor.
7. Heads of Terms (HoT)
A HoT is a “pre-contract” document made between you and a potential investor. It provides a record of the key terms of an agreement before a more detailed contract is drawn up. Although a HoT is not legally binding, some of its terms can be binding, such as:
Confidentiality/non-disclosure
An obligation to agree the full terms as soon as possible (or by a certain date)
A clause saying you cannot negotiate with another party in the interim
Who should pay for legal and/or negotiation costs
Key People
These legal documents are critical for managing relationships with the people who work for, and invest in, your business.
8. Shareholder Agreements
This is a critical document that sets out the rights and obligations of your company’s shareholders and the relationship between them. It will normally include details such as:
Who can appoint and remove Board Directors
The issuing and transfer of shares
Non-compete clauses for the company’s founders
What happens if the company is sold, publicly listed, dissolved or liquidated
How potential disputes between shareholders will be handled
9. Employee & Contractor agreements
Every employee must have a letter of offer and employment agreement. This will clearly outline the employee’s rights, obligations and responsibilities, and can help to minimise the opportunity for disputes.
Contractor Agreements outline the scope of work the contractor will undertake, payment, liability, restraint of trade/confidentiality and any other relevant matters.
Ts & Cs
These documents set out the terms under which you conduct your business. They can help to minimise the potential for issues or disputes, and ensure fairness in the transactions between your business and its clients.
10. Customer Terms of Trade
These form a legal contract between you and your customers/clients which sets out each parties’ rights and obligations when a customer uses your service or product. It can include payment terms, warranties/guarantees, extent of liability, and how any disputes will be handled.
11. Website Terms of Use
This is a statement that explains to website visitors how they can use your site and the content on it. It should also include a disclaimer to limit your liability if they use the information and something goes wrong.
12. Privacy Policy
The Privacy Act 2020 requires all New Zealand businesses to be transparent about how, when, and why they collect personal information. A privacy policy explains how your business handles personal information – this includes data linked to people that visit your website or social media pages.