Handbook
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Business Fundamentals
Contracts and Agreements You Need from Day One
The legal documents that protect your company and relationships. Don't skip these even if you're moving fast.
Legal documents feel bureaucratic, but they protect you when things go wrong. The right agreements prevent disputes, clarify expectations, and protect your company’s assets.
Here are the essential contracts for early-stage startups.
Founder Agreements
Founders’ Agreement / Operating Agreement
What it is: Agreement between co-founders about ownership, roles, and what happens if things change.
Why you need it: Without it, you have no clear answer to: What happens if a founder leaves? How are decisions made? Who owns what?
Key terms:
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Equity split
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Vesting schedule (4-year with 1-year cliff is standard)
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Roles and responsibilities
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Decision-making process
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What happens if a founder leaves
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IP assignment to the company
When: Before or immediately after incorporating.
Note: If using standard YC documents or formation services, much of this is covered. Review it anyway.
IP Assignment
What it is: Founders assign all relevant intellectual property to the company.
Why you need it: The company needs to own the IP, not individual founders. Without assignment, a departing founder could claim ownership of core technology.
Key terms:
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All prior relevant IP assigned
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All future work product assigned
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Confirmation of work-for-hire
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Waiver of moral rights (where applicable)
When: At incorporation. Should be part of founder agreements.
Employee Agreements
Employment Agreement
What it is: The contract between the company and each employee.
Why you need it: Defines the relationship, compensation, responsibilities, and protections for both parties.
Key terms:
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Position and responsibilities
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Compensation (salary, equity)
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At-will employment (in most US states)
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Benefits
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Confidentiality obligations
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IP assignment
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Non-solicitation (not non-compete in many states)
When: Before the employee starts work.
Confidentiality and Invention Assignment (CIIA)
What it is: Agreement that the employee will keep confidential information secret and assign inventions to the company.
Why you need it: Without it, employees could take trade secrets or claim ownership of what they build.
Key terms:
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Definition of confidential information
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Non-disclosure obligations
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Assignment of inventions
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Prior inventions excluded (list them)
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Return of materials upon termination
When: Often combined with employment agreement. Sign before first day.
Offer Letter
What it is: The document that makes a formal job offer.
Why you need it: Confirms the terms the employee accepts before signing full agreements.
Key terms:
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Position
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Start date
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Compensation
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Equity (number of options, vesting)
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Contingencies (background check, etc.)
When: Before the employee accepts.
Contractor Agreements
Independent Contractor Agreement
What it is: Contract with someone who provides services but isn’t an employee.
Why you need it: Clarifies the relationship is contractor (not employee), defines deliverables, and ensures IP assignment.
Key terms:
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Scope of work
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Compensation and payment terms
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Independent contractor status (they’re responsible for taxes)
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IP assignment (work product belongs to company)
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Confidentiality
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Termination provisions
When: Before work begins.
Important: Misclassifying employees as contractors has serious legal and tax consequences. Understand the distinction.
Customer Agreements
Terms of Service (ToS)
What it is: The agreement users accept when using your product.
Why you need it: Establishes the legal relationship with users, limits liability, defines acceptable use.
Key terms:
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License to use the service
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User obligations and prohibited uses
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Intellectual property rights
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Disclaimers and limitation of liability
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Termination rights
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Dispute resolution (arbitration vs. courts)
When: Before launching to users.
Privacy Policy
What it is: Discloses how you collect, use, and protect user data.
Why you need it: Required by law (GDPR, CCPA, etc.) if you collect personal data. Users need to know how their data is handled.
Key terms:
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What data you collect
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How you use it
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How it’s protected
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Third parties you share with
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User rights (access, deletion)
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Contact information
When: Before collecting any user data.
Master Service Agreement (MSA) / Enterprise Agreement
What it is: Comprehensive contract for larger customers, often negotiated.
Why you need it: Enterprise customers want negotiated terms beyond standard ToS.
Key terms:
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Service description
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Service level agreements (SLAs)
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Data security and privacy
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Payment terms
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Warranties
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Indemnification
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Limitation of liability
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Term and termination
When: When selling to enterprise or larger customers.
Data Processing Agreement (DPA)
What it is: Agreement about how you handle customer data, required by GDPR.
Why you need it: If you process personal data for EU customers, you need a DPA.
Key terms:
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Data processing details
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Security measures
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Sub-processors
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Data subject rights
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Breach notification
When: If you have EU customers or users.
Advisor Agreements
Advisor Agreement
What it is: Agreement with advisors who provide guidance in exchange for equity.
Why you need it: Defines expectations, compensation, and prevents misunderstandings.
Key terms:
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Advisory services expected
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Equity compensation (typically 0.25-1%)
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Vesting schedule (often 2 years monthly)
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Time commitment expected
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Confidentiality
When: Before the advisory relationship begins.
Standard: FAST Agreement (Founder/Advisor Standard Template) is commonly used.
Where to Get Templates
Quality Sources
YC’s Standard Documents: Free, widely used, investor-familiar.
Clerky: Quality templates included with formation.
Cooley GO: Free startup documents.
Stripe Atlas: Includes key documents.
Your lawyer: For customization and complex situations.
What to Avoid
Random internet templates: Quality varies wildly. Often outdated or inappropriate.
Copying from other startups: Their situation may differ from yours.
No agreement at all: Handshake deals cause problems.
Working with Lawyers
When You Need a Lawyer
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Negotiating with investors
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Complex customer contracts
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Employment disputes
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M&A discussions
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Unusual situations
When Templates Work
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Standard employee agreements
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Standard contractor agreements
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Basic ToS and privacy policy
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Advisor agreements
Finding a Startup Lawyer
Look for:
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Startup experience
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Fixed-fee options for routine work
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Responsiveness
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Not overkill for your stage
Sources:
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Referrals from other founders
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YC lawyer recommendations
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Startup-focused firms (Cooley, Fenwick, Orrick, Gunderson)
Common Mistakes
No written agreements: Verbal agreements create disputes.
Wrong contractor classification: Treating employees as contractors invites problems.
No IP assignment: Founders or employees walking away with company IP.
Standard terms with enterprise customers: Big customers expect negotiation.
Outdated privacy policy: Laws change. Review annually.
Not reading what you sign: Understand the key terms.
The Essential Checklist
Formation:
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[ ] Founders’ agreement / equity allocation
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[ ] IP assignment from founders
Hiring:
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[ ] Offer letter template
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[ ] Employment agreement template
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[ ] CIIA template
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[ ] Contractor agreement template
Customers:
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[ ] Terms of Service
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[ ] Privacy Policy
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[ ] DPA (if EU customers)
Optional:
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[ ] Advisor agreement template
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[ ] NDA template
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[ ] MSA template
Key Takeaways
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Have written agreements for all key relationships
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IP assignment is critical—the company must own its technology
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Employee vs. contractor classification matters legally
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Terms of Service and Privacy Policy are required before launch
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Use quality templates (YC, Clerky) for routine agreements
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Get lawyer help for fundraising, enterprise deals, and complex situations
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Review agreements annually—laws and business change
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