Legal Dispirin for Founders: The Four Agreements Every Founder Needs to Avoid Future Headaches
Shradhanjali Sarma
Founders usually think of legal work as a cost, and honestly it is completely understandable. When you are just starting out, every penny matters. You are building your MVP, trying to find your first customers, marketing your product, hiring your first employees, and juggling a million moving parts. In all of that chaos, legal feels like something that can wait.
And then there are options like ChatGPT, online templates, and quick “legal hacks” that seem like easy, free alternatives. Legal fees can feel overwhelming, especially when you are still figuring out your product-market fit and investors are still “interested” but haven’t committed. It is tempting to push legal work to the bottom of the to-do list.
But here is something I hear again and again in conversations with founders - “Do I really need a lawyer? For how long? And how do I even engage one?”
My honest answer is that you don’t need a lawyer on speed dial 24/7 from day one. But you do need to build the right legal foundation early on because legal issues are like plumbing leaks. If you ignore them, they will flood your house at the worst possible time.
The good news is that if you focus on a few key agreements early on, you won’t have to constantly react to legal crises later. You will have clarity, structure, and peace of mind as you scale. Once you have registered your private limited company, there are four agreements you simply cannot ignore.
First, you need a co-founder agreement. I cannot stress this enough, but a co-founder agreement is like a prenup for your business. You may be building your startup with your best friend, your college roommate, or someone you met at an accelerator, but relationships evolve and so do ambitions. A solid co-founder agreement helps define roles and responsibilities, set equity splits, and establish how decisions are made within the company. It also outlines vesting schedules, ensuring that each founder earns their shares over time, and most importantly, it plans for exits. Imagine this scenario: your co-founder decides to quit six months in because they have received a dream job offer. Without an agreement, do they still hold on to 50 percent equity forever? That situation becomes a nightmare when you try to raise funds. Exit provisions are crucial as it helps answering these questions - what happens to the shares if a co-founder leaves or is forced out? If there is one agreement you should put in place before anything else, it is this one.
Second, an employment agreement is equally critical. As soon as you start hiring, even if it is just interns or freelancers, you need clear employment agreements. Too many startups make the mistake of hiring people based on verbal commitments or informal emails. This often leads to disputes when someone underperforms, leaks confidential data, or leaves without notice. Your employment agreement should define job roles, key responsibilities, and expectations from day one. It must clarify who owns the work product, and the answer should always be the company. It should include clauses that protect your business such as confidentiality, non-compete, and non-solicit provisions. Termination clauses are vital, covering situations where you need to let someone go for performance or other issues. Startups often operate on trust, but trust alone cannot protect your business if something goes wrong. A well-drafted employment agreement ensures both you and your employees know exactly where you stand. I have written about this in more detail here: Why Employment Contracts Matter for Startups.
Third, you need to have a core business agreement in place. This is where many startups falter. Your core business agreement is the contract that governs how you deliver your product or service to your customers. Every business is structured differently. A SaaS startup needs a well-defined subscription agreement. A D2C brand needs clear terms of service and return policies. A service-based business needs a comprehensive master services agreement. For instance, imagine you are running a startup that provides drone inspection services for buildings and infrastructure projects. This is your core business. But what happens if a client delays payment for months? What happens if there is damage or injury during an inspection? What if the client demands additional services outside the original scope of work? What if there’s a dispute regarding ownership of the data collected by your drone? All these risks can be mitigated if your core business agreement is drafted thoughtfully. This agreement should clearly define what services or products you will deliver, the payment structure and milestones, liabilities and indemnities, data protection responsibilities, intellectual property ownership, and what happens if there is a breach of contract or dispute. Having such a contract is not about being overly legalistic, but it is about protecting your revenue and building client relationships on a solid foundation of mutual understanding.
Finally, there’s the non-disclosure agreement or NDA. Everyone knows about NDAs, but many founders misunderstand their scope. An NDA protects confidentiality, but that’s where does the scope ends. It does not replace a proper business contract. It does not define deliverables, payment terms, or responsibilities. An NDA is useful when you are sharing sensitive business information with a potential investor, vendor, or partner. It ensures that the other party cannot misuse or disclose your proprietary information. But once that initial discussion progresses and you are entering into a working relationship, you need to follow up the NDA with a proper core business agreement, like a master service agreement or any other core agreement, depending on your business. Founders should remember that an NDA is just the starting point. It is like the guardrail at the beginning of a mountain road, but not the entire road to keep your business safe.
What I have learned from working with startups is that legal mistakes are rarely made out of negligence. More often, they come from not knowing what to prioritize. Founders are constantly firefighting, and legal tends to become a reactive process instead of a proactive one. But legal issues have a habit of showing up when you least expect them. That is why having a structured approach makes all the difference.
The beauty of having these four agreements in place is that it allows you to understand where you need legal intervention and where you can handle things yourself. It also prevents over-engagement. You do not need to retain a lawyer for months or years without purpose. Instead, you can engage legal experts for specific projects or reviews, while knowing that your core documents are robust and working in your favor. This also helps during fundraising. Investors perform due diligence before writing cheques, and having your agreements sorted signals maturity and foresight. It tells them that you are not only building a product but also building a sustainable business.
Startups are built on vision, grit, and risk-taking. But they also need structure. Legal documents might not feel as exciting as product launches or customer acquisitions, but they are what quietly protect your dreams from falling apart.
If you are a founder reading this and wondering where to start, start here. Get your co-founder agreement, employment agreements, core business agreement, and NDA in place. Once that foundation is built, you will find that legal issues become less of a stress point and more of a support system as you scale. You will also be able to focus on what you do best, which is building, selling, and innovating, knowing that the business side is protected.
And if you are ever unsure, do not hesitate to reach out. A little clarity now can save you big headaches later!
You can reach out at: shradhanjali.sarma@gmail.com for any legal queries.