Startup Contracts Every Founder Needs

The Startup Contracts Every Founder Needs (and the Clauses That Bite)

Most early-stage legal pain doesn’t come from exotic problems. It comes from ordinary contracts. Contracts that were never signed. Contracts signed without being read. Contracts downloaded from the internet and used well past their expiry date. The good news is that a young company doesn’t need a filing cabinet full of agreements. It needs a fairly short core set, done properly, and an understanding of the specific clauses that cause trouble when they’re wrong.

The thesis here is simple: most founders would be in far better shape getting a handful of documents right than chasing every edge case. So let’s cover the core set, then the clauses that bite, then the honest question of when a template is fine and when it isn’t. For where these sit in the broader sequence of company-building, see the founder’s legal stack.

What’s the core contract set?

A typical early company needs some version of the following. Not all on day one, but all before they’re urgent:

• Founder and equity documents. Who owns what, on what vesting schedule, and what happens if a founder leaves. Vesting isn’t a sign of distrust; it’s the thing that protects the founders who stay from the one who walks after six months with a quarter of the company.
• IP assignment agreements. The documents that put the company’s intellectual property in the company, from founders, employees, and contractors alike. More on this below, because it’s the one I’d never skip.
• Customer or client agreements. Your terms of service, master services agreement, or sales contract, whatever form your revenue actually takes. This is where your liability lives.
• Vendor and contractor agreements. The mirror image: the terms under which people do work for you, including who owns what they produce.
• Employment and offer documents. Offer letters, at-will confirmation, and the confidentiality/IP paperwork that goes with hiring.
• NDAs. Useful in the specific moments they’re needed, not the reflexive first move some founders think they are.

If your model involves outside money, your SAFEs and financing documents join this list, but they’re a category of their own.

The one I’d never skip: IP assignment

If I could get a founder to take only one thing seriously, it’s this. The value of an early company is mostly its intellectual property: code, designs, brand, product. And here’s the trap: absent the right paperwork, the person who created something may still own it, not the company. A contractor who wrote a chunk of your product on a handshake can, depending on the facts, retain rights to it. A founder who built the prototype before incorporating may not have cleanly transferred it in.

The fix is a PIIA — a Proprietary Information and Inventions Assignment agreement — signed by every founder, employee, and contractor, assigning to the company the work they do for it and protecting confidential information. This is the single most common thing investors’ lawyers check in diligence, and gaps here can stall or reprice a financing at the worst possible moment. Get the assignments signed early, while everyone’s friendly and it’s a formality, not later, when it’s a negotiation.

Which clauses actually bite?

Within those contracts, a few clauses do most of the damage when they’re wrong. These are the ones I read first:

• Indemnity. A promise to cover someone else’s losses. It’s the clause most likely to turn a modest deal into an unlimited liability. Watch for one-sided indemnities where you cover the other side broadly and get nothing back, and for indemnities that aren’t tied to your fault. Mutual and reasonably scoped is the target.
• Limitation of liability. The counterweight to indemnity: the cap on what you can owe if things go wrong. A missing or weak liability cap means an ordinary contract dispute can reach far past the value of the deal. This clause and the indemnity clause have to be read together; a great indemnity with no liability cap can still sink you.
• IP assignment / ownership. Inside a services or contractor agreement, the clause that says who owns the work product. Get this backwards and you can pay someone to build something you don’t end up owning. (See above: this is the PIIA logic, embedded in the deal.)
• Termination. How, and on what notice, either side can walk away, and what survives when they do. Auto-renewing terms, long notice periods, and lopsided termination rights are where founders get stuck in agreements they’ve outgrown.

There are others (confidentiality, non-solicit, governing law, dispute resolution), but if you understand those four, you understand most of where contracts actually hurt people.

Template or bespoke?

Now the honest part, because founders always ask: do I really need a lawyer to draft this, or can I use a template?

Templates are genuinely useful, and I’m not going to pretend otherwise. For low-stakes, standardized situations (a simple mutual NDA, a basic contractor agreement for routine work), a good template from a reputable source is often fine, and paying for a fully custom draft would be gold-plating. The risk isn’t templates as a category. It’s using a template outside the situation it was built for: a form pulled from another state or another industry, a one-size agreement stretched over your biggest customer deal, or a document nobody actually read before signing.

The rule of thumb I’d offer: the higher the stakes and the more the agreement is negotiated, the more a template costs you rather than saves you. Your terms of service, your key customer and partnership contracts, your equity and IP documents, and anything a counterparty has marked up: those earn real review. The routine, low-value, standardized stuff often doesn’t. Spending your legal budget in that order is how you get the most protection per dollar.

When should you get eyes on it?

A few triggers reliably mean it’s worth having someone review a contract before you sign: serious money or a long term; anything involving your core IP; a broad indemnity or a missing liability cap; a counterparty much larger than you (their paper is written for them); and any agreement you don’t fully understand. “I didn’t read it closely” is not a defense that appears in any contract. This steady flow of review is, not coincidentally, exactly what an ongoing fractional general counsel arrangement is for.

The takeaway

You don’t need every contract that exists. You need a short core set: founder and equity docs, IP assignments, customer and vendor agreements, employment paperwork, and NDAs when they’re actually warranted, with the IP assignments treated as non-negotiable. Read the four clauses that bite: indemnity, limitation of liability, IP ownership, and termination. Use templates where the stakes are low and get real eyes on the agreements where they’re high. Do that, and you’ve handled the majority of the contract risk a young company faces. If you’d like a review of your core set before it matters, I’m glad to help.

This article is general information, not legal or tax advice, and reading it does not create an attorney-client relationship. Your specific facts matter; confirm current requirements with the relevant authorities or your own advisor. Law Office of Ian Daily.