A brilliant light bulb moment.
You are absolutely sure your idea is the next billion dollar business. You do a little market research, throw some competitive research into the mix and you are ready to take over the world.
You register your business, put up a website, look for a co-founder, recruit some amazing people, start your aggressive marketing and bam! You are in business.
Something’s very wrong with the scenario. Because you have considered everything BUT the legal considerations of operating your business.
Due to that oversight (or maybe it wasn’t an oversight, you just can’t be bothered with anything legal), you make room for challenges to hit your business.
It is time to stop running from the word Legal.
These documents play an essential role in protecting the business, business owners and stakeholders in the business for as long as the company exists.
See below, 13 essential documents we think your business should have.
This is pretty easy..
How do you use customer data? What information do you collect from your customers? How do you share such information with third parties?
Internally, which document would you keep confidential? And which do you feel comfortable disclosing to the public? It also covers how you use client or employee data.
To put it succinctly, it is a document that explains how your organization deals with information and details.
- Terms of service (TOS)
Let’s start with the word “service”.
In order for people to use a service, they need to abide by the rules. Sometimes, your TOS can just be a disclaimer.
How many times have you tried to sign up for a service or an account ( like a Google account) and you have to check a tiny little box before you are allowed into their system?
One question for you…
On a scale of 1-10, how many times have you fully read the TOS before checking the box? I bet it’s zero.
Although very often people overlook the intricate details in a TOS, it is incredibly important that you have one..
- Minutes of Meetings
It can be incredibly frustrating for you when someone you had a simple discussion with does not agree with you on what was discussed and promised during your talk.
It gets even worse. You have no proof. And so more often than not, you have to let it go.
This is fine for personal relationships, but when running a business? It could be disastrous.
That is why you need to ensure that the minutes of the meetings held in your company are taken.
Minutes of a meeting are the official written record of the meetings of an organization or group written or the recorded documentation used to inform attendees and non-attendees of a meeting of the key happenings at that meeting.
It usually contains the names of attendees, the agenda, decisions made and follow-up actions committed to by participants with due dates.
Having follow-up actions attributed to participants with due dates gives you a fair shot at accountability.
As a Nigerian company, the law makes it compulsory for you to record minutes of a meeting of shareholders and directors in a minutes book. The minutes’ book must also be kept at the registered office of your company.
- Non Disclosure Agreement (NDA)
We established this before. To get someone or a party to sign an NDA, you need leverage.
Money, a fabulous product, a patent, anything that gives you an edge and subsequently the bargaining chips.
A nondisclosure agreement is a written legal contract. It lays out binding terms and conditions that prohibit the signee from disclosing confidential and proprietary company information.
An NDA can be one way or two ways. That is, it can one business signing an NDA at the request of another business, or it can be two businesses signing an NDA due to a project they are both working on.
Apart from outlining the confidential and proprietary information, your NDA may have restriction clauses like non-circumvention, non-compete or non-solicitation clause. A non-circumvention clause prevents one party from trying to do the particular transaction the NDA pertains to on its own without the involvement of the other party. A non-compete clause is a clause under which one party agrees not to enter into or start a similar business in competition against the other party. A non-solicitation clause, on the other hand, is a clause that prevents one party from taking the employees, customers, suppliers etc of the other party when they do business together. Restriction clauses cannot be forever! They must be limited by time, location or jurisdiction
- Memorandum of Understanding
This is often the first stage of a contract or a formal agreement.
It clearly spells out the expectations each party in a negotiation is expected to fulfill. A Memorandum of Understanding (MOU) signals that a legal contract is imminent.
It is a document that expresses mutual accord on an issue between two or more parties, MOUs are generally not binding and legally enforceable except the parties specifically state so in the MOU.
- Memorandum and Articles of Association (MEMART)
Running a company means you have to deal with terms like board of directors, annual meeting procedures and so many more.
So it follows, that there are official rules and regulations which will govern the activities of the different management cadres. Every company must have a MEMART at incorporation.
The memorandum of association states the object of a company, it defines the company’s purpose and the kind of businesses it can engage in..
The Articles of association details how a company will operate. It lists the duties and responsibilities of the people who own (shareholders) and manage (directors) a company.
It goes one step further… It also allows you regulate shareholder ownership and transfer rights, select officers, and directors, provide details on frequency and modalities for shareholders and directors’ meetings, establish how to remove officers or directors, etc.
- Shareholders Agreement
This is an agreement between the shareholders (owners) of a company that defines their mutual obligations, privileges, protections, and rights. It provides additional details to the MEMART.
As it is not a compulsory requirement, not every company has a shareholders’ agreement but it is good corporate governance practice to have one.
It doesn’t matter how much shares you own. You could own 5 units of shares or 1 million units, if a company has a shareholders agreement, then you are bound by it. You are entitled to the rights laid out in the agreement and bound by any obligations laid out in the agreement
- Partnership Agreement
You and a very good friend of yours hook up to run a business.
He’s an amazing fellow and you can vouch for his character. So there’s no need for a legal document. Big mistake.
The lack of a written agreement between partners who carry out a for-profit business is equal to signing over the rights to your company, bit by bit.
Having a partnership agreement defines the nature of the business, capital contributed by each partner, and their rights and responsibilities.
In some instances, your partnership agreement could be a co-founders agreement.
- Employee Handbook
This is a somewhat uncool illustration, but here goes:
You purchase a brand new TV. It’s the rave of the moment, and you can’t wait to get your hands on it. There’s just one BUT.
Brand new and advanced means there are some functionalities you are clueless about. If you don’t understand how these things work, you might as well be using your previous television set. So what do you do? You turn to your TV manual.
It is almost the same as having new employees. You need to tell them all there is to know about your business …your mission, vision, values, code of conduct etc.
The employee handbook provides all of these details. Although not technically a legal document, an employee handbook can save you a ton of a legal headache and prevent legal disputes in the future.
Having an employee handbook is good practice as it helps those working with you to have clarity on these details and forestalls any form of confusion in the company.
- Collaboration Agreement
In the course of your business, you might have to partner with other companies doing businesses different from that of your company, for a period of time to accomplish a business purpose. You need to outline the very important details of the collaboration in a collaboration agreement.
A collaboration agreement describes the project or business to be done together. It sets out the rights and duties of each party, payment terms, what happens when parties can’t agree etc
- Service Level Agreement (SLA)
If your business entails providing a service as opposed to the selling of physical goods, you need to have a service level agreement.
An SLA is an official contract between a service provider and a client which specifies particular aspects of the service.
It includes details of quality levels, availability, responsibilities, what happens when there is a downtime, escalation procedure etc.
- Consultancy Agreement
In the course of your business, you may have to engage the services of people who are not necessarily employees of your company for a period of time. Such people are called independent contractors as they are employed to perform a certain obligation in your company for a certain period of time.
It is therefore important to have an employee consultant agreement between your company and any independent contractor(s) that may be employed by the company to provide any consultancy service.
You would have come across a disclaimer at one point
Although not always a document (like in DIYlaw’s case), a disclaimer is a legal statement or document that renounces a claim, responsibility or affiliation.
It could be as complex as a clause that tries to prevent the creation of a warranty or contract or something as simple as you spelling out in clear terms what your business does not do.