5 Contracts Every Philippine Startup Must Have Featured image

5 Contracts Every Philippine Startup Must Have

by Raymond Rodis
3 years ago

Like it or not, there will come a point where every startup will need paperwork. 

That’s why we’ve decided to compile a list of contracts every startup will need.

Don’t worry if you can't yet afford a lawyer. You can download contract templates in Word and PDF form by clicking the links below.

1. Founders Agreement

How many shares does each founder get? What happens if a founder suddenly leaves or does not perform? What are the founders duties and responsibilities?

These are the questions that can be answered by a Founders Agreement. Even if you aren’t ready yet to register your business, a private agreement between the founders may still protect all parties. No one wants to invest in a startup where a founder is long gone, but still retains a lot of shares. You can solve the problem by requiring in the Founders Agreement that the founders stay a certain number of years and/or perform certain milestones (vesting) before they get their full shares.

2. Non-Disclosure Agreement

It is every startup’s nightmare that someone with more resources will copy their idea. While it is true that ideas are cheap and some investors would not even consider signing a Non Disclosure Agreement (NDA) before listening to your pitch, others are willing to sign NDAs. This is especially important when you are sharing sensitive data that should be confidential including how your product works and company financials.

3. Articles of Incorporation

There will come a point where you will want to formally register your startup. A corporation may suit you best as it will allow you to issue shares to other founders, employees, and investors. Articles of Incorporation is the first requirement that the Securities and Exchange Commission (SEC) will require from you.

While the SEC online system provides a template Articles of Incorporation, you may want to seek the assistance of a lawyer if you want something custom made for your startup. For example, Articles of Incorporation may provide for multiple classes of shares with different voting rights including what is called Founders Shares under the Revised Corporation Code. A famous example is how Mark Zuckerberg is able to control Facebook through special voting shares despite having less than half the total shares of Facebook.

4. Employment Contract

No matter how lean you want to be, every growing startup will hire at least one employee. As the startup mantra goes, hire slow and fire fast. By having a written employment contract, you protect the startup by making the performance standards expected of the employee clear. Under the law, you cannot even remove probationary employees for failing to meet standards if you never explained to them the expected standards in the first place. You can even provide that employees will get shares of stock or stock options vested over time in order to incentivize them to work harder.

5. Memorandum of Agreement

There will come a time that every startup will partner with third parties. This can be as simple as outsourcing a certain service or by agreeing to a strategic partnership. While the terms of each Memorandum of Agreement differ wildly depending on the type of agreement, what is important is that everything is put into writing. This includes who is responsible for specific obligations, the payment terms (if any), how to cancel the agreement, and other important provisions.

While putting things into writing may appear confusing and time consuming, it will definitely save you a lot of time, money, and stress later on.

Remember, an ounce of prevention is worth a ton of cure. It is a lot easier to set things in writing when your startup has no value as compared to when it is already worth a lot of money and people are willing to fight for their shares.

Atty. Raymond Rodis is one of the many lawyers you can find on Digest. Post your legal concern here on Digest and we will find you a lawyer that fits your budget and issue.

Digest is a one-stop shop for Philippine laws, lawyers, and contracts.

 

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