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6 Things Startups Should Know About a Legal Agreement

DIGITAL VENTURES April 14, 2017 5:28 AM


A legally binding document such as an agreement can give you leverage in the business world. Once you are “legally-savvy”, you are off to a great start.

Be cautious!

An agreement is a legally binding document and in circumstances of disputes, the court will only review the agreement. Therefore, entrepreneurs and startups shall carefully draft the agreement and be sure to avoid loopholes. There’s a saying among legal practitioners to “never look on the bright side”, this is to ensure extreme caution when it comes to legal agreements.

Today, we will share what Baker & McKenzie, renowned legal specialist, has summarized for DVAb0 about drafting agreements.

  • Never leave out small details.

In drafting agreements, small details are crucial and are the items never to be overlooked. Items such as time, related parties, and places need to be clearly stated. Businesses such as FinTech have distinctive laws, thus, startups need to thoroughly study all the information. Moreover, the legal status of the contracting party is also a concern that needs to be examined prior to making the agreement (ex. bankrupted) as it may directly affect the business.

  • Objectives need to be clear.

In defining the objective, it must not be prohibited by law or impossible or is contrary to public order or good morals.

  • Better have an agreement, then be sorry.

An agreement, to some people, may be a minor part of the business and seems unnecessary.  Yet, to be cautious and for mutual understanding, a written agreement shall be drafted. The types of agreement may differ among industries such as for real estate, lease, long-term lease (more than 3 years), shares transfer, employment agreement etc.

  • In difficult times, an agreement can help you.

After disputes or damages, what follows are indemnity claims. Usually, the court will consider compensation only if there are violations of the agreement. There are various types of indemnity claims ex. compensation, demolition (of constructions), or termination (of agreements).

  • The agreements should match the type of business.

Business agreements have a format which consists of the following:

  • The Heading states the date and time, place, title, and contracting parties.

  • The Body has specific details depending on the type of agreement. The common details are investment return, affirmative, period of the agreement, and right to terminate etc.

  • Choose the appropriate language for the agreement.

Language is also very important. Normally, it depends on the area or the benefits where the agreement is valid. Moreover, if the case is brought to court, the agreement needs to be translated to the country’s official language.

Startups and entrepreneurs who have just started their businesses must consider these concerns when drafting an agreement and must thoroughly study all the details in advance or, another option, is to seek legal consultation. Startups can also gain more legal knowledge, here, at the Digital Ventures Blog.