Weekly Newsletter Archive

SeedLegal's Guide to Protecting Your Startup from Legal Risks

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Chris Apostolou

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The last thing you need as a founder is a legal issue on your hands. It’s important to avoid legal risks so that you know your company is safe and you can focus on building success. We’ve put together some guidance on what you can do to protect your startup against legal risks from the beginning. 

Start with the basics 

One of the first steps you can take to protect yourself and your company is to sign a Founder Pledge

A Founder Pledge is a contract that outlines the duties of every founder in relation to the company. It includes clauses that protect the company’s interests and property. The purpose of this contract is to protect your company in case of a breach from one of the founders. 

When your company starts to grow and you begin raising startup funding you can put a Founders Service Agreement in place, which covers terms about the founder's duties and shares as well as terms you’d find in an employment contract like the founder’s salary and time off allowance.  

“A properly crafted agreement between the founders and the company (or between each founder and the company) will make sure that:

  • all valuable assets belong to the company itself;
  • founders are incentivised to stay with the company long enough (this is achieved through subjecting founders' shares to reverse-vesting); and
  • founders are disincentivised from starting or joining a competing business.”
  • Valeria Ivasikh, Legal Team Manager, SeedLegals 


When your founder agreements are sorted, you’ll need to make sure you have robust legal contracts in place with any employees and external contractors you hire. 

Keep things confidential 

Great ideas are the foundation of a startup, so you definitely don’t want yours being stolen.  Make sure you have an NDA in place when sharing any confidential information about your company. NDAs keep sensitive information confidential and protect your intellectual property. They bind recipients of the information to secrecy so you can  move through negotiations with trust between all parties. 

Respect privacy

The Data Protection Act requires you to have a website privacy policy. If your website collects data which can be used to personally identify an individual you’ll need to explain what data you’re collecting and why you’re collecting it. 

Protect your IP

You need an IP agreement to make sure that anything worked on for your company (from products to your website and everything in between) legally belongs to your company. 

Hiring contracts should include a clause about IP ownership, but if you’re allowing someone to work on your product or idea without a proper contract in place, it’s imperative that you put an IP agreement in place. As part of their due diligence, investors will want to make sure you have this. 

Protect shareholders

When you do a funding round, one of the most important documents you need is a shareholders agreement. 

A shareholders agreement outlines the relationships between the company and its various stakeholders - normally the founders and the investors. Unlike the articles of association, the shareholders agreement is a private contract that won’t be published on Companies House for the world to see, so shareholders prefer to list their commercially sensitive agreements and personal rights in that agreement instead.

A shareholders agreement is important because it protects the rights of all shareholders in your company. 

Get legal assistance where necessary

Having the right contracts in place is the foundation of legal security for your company, but sometimes there are more complex scenarios that might require the help of a lawyer, like when you raise large Series A funding rounds. 

It’s no secret that legal fees are high so the key is to optimise how and when you spend money on a lawyer: do as much as you can without paying legal fees per hour and only hire a lawyer when necessary. 

Legaltech solutions like SeedLegals can help you reduce your legal spend so that you don’t waste cash paying per hour to create contracts when it’s not necessary. 

SeedLegals optimises legal admin for startups by providing automated, customisable legal documents you can create yourself. They also provide help from industry experts to answer your questions and guide you if you need it. Book a call to find out how they can help you with your startup legal documents. 

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