Starting a business is exciting, and it’s easy to focus all your energy on the product, the customers, and the revenue. But one of the most important things you can do early on is get the right contracts in place. Contracts define the rules of every business relationship, and without them, you’re relying on assumptions and good faith to hold things together.
That works until it doesn’t. When a disagreement comes up (and it will), having a clear, signed agreement makes the difference between a quick resolution and a costly dispute.
Here are the contracts every startup should consider.
1. Founders’ Agreement / Operating Agreement
If you’re starting a business with one or more co-founders, this is the most important document you’ll create. It defines how the business is owned, how decisions are made, and what happens if things change.
An operating agreement (for LLCs) or shareholders’ agreement (for corporations) should cover:
- Ownership percentages. Who owns what, and how was that determined.
- Roles and responsibilities. Who handles what in the business. This prevents overlap and confusion.
- Decision-making authority. How major decisions are made. Unanimous vote? Majority? Does one founder have final say on certain matters?
- Capital contributions. How much each founder is putting in, whether that’s cash, equipment, or sweat equity.
- Profit and loss distribution. How profits are split and how losses are handled.
- Exit provisions. What happens if a founder wants to leave, gets incapacitated, or passes away. Buy-sell provisions, vesting schedules, and buyout terms.
- Dispute resolution. How disagreements between founders are resolved (mediation, arbitration, etc.).
The best time to create this agreement is when everyone is aligned and excited about the business. Trying to negotiate these terms during a dispute is significantly harder and more expensive.
If you’re starting a business with your spouse, this agreement is especially important for defining how the business operates within the marriage and what happens in worst-case scenarios.
2. Client / Customer Agreements
Every time you provide a product or service to a customer, there should be a written agreement. This protects both sides and prevents misunderstandings about scope, payment, and expectations.
A good client agreement includes:
- Scope of work. Exactly what you’re providing and, just as importantly, what you’re not providing.
- Payment terms. How much, when it’s due, and what happens if payment is late.
- Timeline. Expected delivery dates or project milestones.
- Revisions and change orders. How changes to the original scope are handled and billed.
- Limitation of liability. Caps on your financial exposure if something goes wrong.
- Termination clause. How either party can end the agreement, with what notice, and what happens to work in progress.
- Intellectual property ownership. Who owns the work product. This is especially important for creative, software, and consulting businesses.
For product-based businesses, terms of sale or terms and conditions serve a similar function. For service businesses, a master services agreement (MSA) with individual statements of work (SOWs) is a common structure.
3. Independent Contractor Agreements
If you’re hiring freelancers, consultants, or agencies to do work for your business, you need a written agreement for each one. This is important for two reasons: defining the work relationship and establishing who owns what.
Key provisions:
- Scope of work and deliverables. What the contractor is expected to produce.
- Payment terms. Rate, schedule, and invoicing requirements.
- Intellectual property assignment. Without a written assignment, the contractor may own the IP they create for you. I explain why registering and protecting your IP matters in a short video. This is one of the most common oversights startups make. If a contractor builds your website, designs your logo, or writes your code, you need a clause that assigns all IP rights to your company.
- Confidentiality. Protects your proprietary information from being shared or used by the contractor for other clients.
- Non-solicitation. Prevents the contractor from poaching your employees or clients.
- Independent contractor status. Clarifies that the contractor is not an employee, which matters for tax and labor law purposes.
Contractor vs. Employee Misclassification
This is a real risk. If the IRS or a state labor agency determines that someone you’ve been paying as an independent contractor is actually an employee, you could owe back taxes, penalties, and benefits. The distinction comes down to how much control you have over when, where, and how the work is done. If it looks like an employment relationship, a contractor agreement alone won’t protect you.
4. Employee Agreements
When you hire employees, you need agreements that protect both the business and the employee. At minimum, this includes:
- Offer letter or employment agreement. Outlines the position, compensation, benefits, and at-will status (if applicable).
- Confidentiality / NDA. Prevents employees from sharing proprietary business information during and after employment.
- Invention assignment agreement. Ensures that any intellectual property created by the employee during their employment belongs to the company, not the individual. This is critical for tech startups.
- Non-compete agreement. Restricts the employee from working for a competitor for a specified period after leaving. Note that non-compete enforceability varies significantly by state. Some states (like California) don’t enforce them at all.
- Non-solicitation agreement. Prevents departing employees from taking clients or recruiting other employees when they leave.
5. Non-Disclosure Agreements (NDAs)
NDAs protect confidential information when you need to share business details with someone outside the company. You should use them when:
- Pitching to potential investors
- Discussing partnerships or joint ventures
- Sharing proprietary information with vendors or consultants
- Exploring potential acquisitions or mergers
A good NDA specifies:
- What information is considered confidential
- How long the confidentiality obligation lasts
- What the recipient can and can’t do with the information
- Remedies if the agreement is breached
NDAs can be mutual (both parties share confidential information) or one-way (only you’re sharing). Use the version that fits the situation.
6. Terms of Service and Privacy Policy
If your business has a website (and it should), you need:
- Terms of service. Governs how users can interact with your site and any services provided through it. Includes liability limitations, dispute resolution, and acceptable use policies.
- Privacy policy. Discloses what data you collect, how you use it, and how you protect it. This is legally required in most jurisdictions if you collect any personal information, and is mandatory under laws like GDPR (if you have European visitors) and various state privacy laws.
These aren’t just legal formalities. They protect your business from liability and build trust with customers.
FAQs
What is the most important contract for a startup?
The founders’ agreement or operating agreement. It defines ownership, roles, decision-making, and exit provisions between co-founders. Without it, disagreements about who owns what or who decides what can destroy the business. Every other contract matters, but this one comes first.
Do I need a contract for every client?
Yes. Even for small projects or repeat clients, a written agreement protects both sides. It doesn’t have to be long or complicated, but it should clearly define the scope, payment terms, and who owns the work product.
Who owns intellectual property created by a contractor?
Without a written agreement assigning IP rights to your company, the contractor may own what they create, even if you paid for it. Always include an IP assignment clause in your contractor agreements. This applies to logos, websites, code, content, and any other creative work.
What’s the difference between a non-compete and a non-solicitation agreement?
A non-compete prevents someone from working for a competitor. A non-solicitation prevents them from contacting your clients or recruiting your employees. Non-solicitation agreements are generally easier to enforce and are valid in more states than non-competes.
How much does it cost to have business contracts drafted?
Basic contract templates can be drafted by an attorney for $500 to $2,000 each, depending on complexity. A full startup contract package (operating agreement, client agreement, contractor agreement, NDA) typically runs $2,000 to $5,000. Templates can be reused across multiple relationships, so the upfront investment goes a long way.
Next Steps
Contracts might not be the most exciting part of building a startup, but they’re one of the most important. Every relationship your business has, with co-founders, employees, contractors, and clients, should be defined in writing before problems arise.
If you need help getting the right contracts in place for your business, book a consultation and I can help you figure out what you need. I also cover what IP protection costs so you can budget for the full picture.
