Startups and raising funds
There comes a time for most entrepreneurs when you need to raise funds for your startup by either selling equity in the business, obtaining a debt loan, or getting investments to finance growth initiatives.
Once your startup is ready to seek investment, you must obtain the right legal documents.
So, what are the documents that a startup needs to have when raising funds?
- Certificate of Incorporation.
- Shareholders Agreement.
- Term Sheet.
- Intellectual Property Assignment Agreement.
- Investor’s Right Agreement.
- Certificate of Incorporation (COI):
It is a legal document on the formation of a corporation under state law. In other words, it is a license obtained by the government to form a company.
The details that must be included in this document are the following: name and address of the incorporator, business name, address of the registered office, business activity, and the number of shares that can be issued.
This document is important because it stands as proof that your company is registered as a legitimate entity and has the right to issue shares.
- Shareholders Agreement:
Although it is not required by law, it is critical to ensuring your business is in the best position to continue a relationship with existing shareholders or begin a relationship with new investors. The Shareholders’ Agreement will bind the shareholders to a set of agreed terms that will reduce confusion and ensure all shareholders are aware of their rights and obligations to the company. The clauses you require in your agreement can vary depending on your business plans and what you’ve agreed with your investors. Standard Shareholders’ Agreements will include binding clauses that will cover the basics of your business relationship. It includes voting rights, the power to appoint directors, confidentiality clauses, dispute resolution processes, etc.
- Term Sheet:
It is a legal document, a non-binding agreement, that outlines the terms of an investment that
the investor plans to make in a company.
The details that are typically included in the Term Sheets are the following: the investment amount, share allocation, the investor’s commitment, anti-dilution, valuation.
It serves as a template to develop more detailed, legally binding documents.
- Intellectual Property assignment agreement:
Intellectual property (IP) is legally defined as an invention that results from creativity to which one has rights and for which one may apply for a trademark, patent, copyright, or other appropriate protection to keep others from using it without permission.
The Intellectual Property assignment agreement is a legal contract that transfers the creator’s intellectual property to another entity (the company).
The details that must be included in this contract are the following: obligations of the parties, liability and warranties provisions, term of the agreement, applicable law, etc.
This agreement is important because the (IP) is considered the most valuable asset of a startup. It (the startup) has a valuable foundation for a successful business.
- Investor’s Right Agreement:
It is an agreement made between the company and the investor detailing the investor’s rights regarding his investment in the company. This agreement’s key points are the following: right of first refusal, participation rights, corporate governance, etc.
Investors want to know more than just what their shares are worth. The Investors’ Rights Agreement helps the investor feel more comfortable investing in a new company, knowing that he has a say and that his rights are being protected.
Maybel F. Saad
