Start-up must have: three necessary documents for every start-up

There are many documents an entrepreneur needs on their journey. Here are the three essential documents that a start-up entrepreneur cannot do without.

Articles of association: public rules of a company

Articles of association is a public document accessible via Commercial Register in Estonia. The Articles of Association regulate the company’s purpose and specify the process and the details of the company’s operation.

Moreover, the articles stipulate the bodies of the company, such as the management board, general meeting, and in some cases, the supervisory board, and how meetings should be convened and quorum requirements.

As no company can do without articles of association, there are certain compulsory elements to this document arising from law. When founding a company online, the articles of association need to be drafted in the system and will follow the mandatory provisions of law and not leave room for customization.

However, the articles can always be changed at a later date. So, if the company requires tailor-made provisions or inclusion of investor protective regulations, such as tag and drag-along rights, anti-dilution rights, and liquidation preference, the company needs to change the articles.

In case of a more complex article set-up, it is advisable to turn to a legal professional when drawing up the articles of association.

Founders’ agreement: regulation for when everything goes well and when it does not

Another document that is a must-have if you aim to avoid disputes among founders is a founders’ agreement. A founders’ agreement is a document that governs the relations between the founders and the company.

More specifically, the founders’ agreement regulates, among other things, the role and responsibilities of each founder, the main principles for the operation and management of the company, the founders’ obligation not to compete with the company, and not to disclose its business secrets.

One important matter that can be regulated in a founders’ agreement is avoiding dead equity by establishing a reverse vesting scheme. Dead equity is shareholding held by a shareholder who is no longer active in the day-to-day business.

It is not a good sign if the company has dead equity, as the dead equity holder will also partake in the upsides but not contribute to the grind.

The reverse vesting provisions are here to avoid such a scenario – the point of reverse vesting is to establish conditions under which the leaving founder will have to relinquish part of or all of its shareholding.

Non-disclosure agreement: protect your know-how and sensitive information

A non-disclosure agreement or NDA is a legally binding agreement that two parties conclude if their collaboration includes disclosing sensitive information. NDAs can also be concluded in a trial phase when the parties are unsure if their aims and needs overlap to justify establishing more permanent cooperation.

The NDA aims to protect the parties’ sensitive information from being disclosed to third parties. The NDA may cover the disclosure of materials, intellectual property, know-how, business secrets, or other confidential information.

The NDA will determine what kind of information is considered confidential. In those cases, the disclosure thereof is permitted or prohibited, as well as the penalty for disclosure of confidential information.

Without an NDA, there is very little protection against using the information, and establishing the damages claim is an uphill battle. Hence, an NDA should be disclosed when sensitive information is revealed.

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