10 essential legal documents for UK startups

We know how much a founder has on their plate, that’s why we’re on a mission to make your legal admin easier. With the docs sorted, you can focus more on achieving your dreams.

There are many different legal documents you need to start and run your business. In this article, we outline our pick of the ten essential legal documents that UK startups need to start and grow:

1. Founder Pledge
2. Founder Service Agreement
3. IP Assignment Agreement
4. Non-Disclosure Agreement
5. Letter of Appointment for Non-Executive Director
6. Advisor Agreement
7. Consultancy Agreement
8. Employment Agreement (with vesting provisions)
9. Zero Hours Contract
10. Staff Handbook

Download checklist: 10 essential legal documents for UK startups

Can you use contract templates for your business?

It depends on the quality of the template. There has to be a level of customisation for legal documents to protect all parties effectively. Using templates can be very efficient, but it’s rarely a great idea to copy-and-paste a random document you find online.

Why? Because it’s not created specifically for you. You can’t be sure who wrote the contract, what exact business exchanges it was designed to address, or even what legal jurisdiction applies.

When you create a legal document on SeedLegals, we take you through a series of questions to customise the document for your company and your specific situation. In just a few minutes, you’ll have a complete, correctly-worded document ready to sign. In case you have any questions along the way, there is also a team of experts on hand to help. This way, we combine the efficiency of customisable contracts with personalised guidance to help you create reliable legal documents.

10 essential legal documents for UK startups

The list below covers the essential documents you need to protect your business, your employees and your external contractors. All these docs are available to easily customise, share and sign on SeedLegals.

1. Founder Pledge

For idea-stage companies: The Founder Pledge protects the founders and the company if things go wrong.

Starting a business is an exciting time. You have a great idea and a vision to change the world. You might even be in business with your friends or family, but it’s still important to ensure that you plan for the worst while still hoping for the best.

Without the right documents in place, you could end up not being able to do much if your co-founder is not acting in the company’s best interests.

The provisions in a Founder Pledge outline the duties of every founder in relation to the company. It also sets out why and when a founder can be terminated and what to do if a director leaves the company, as well as other clauses protecting the company’s property and interests.

The Founder Pledge is quite lightweight so when you start getting beyond just the idea stage and begin moving towards that first rounding round, you should consider the more serious Founder Service Agreement which contains more provisions.

2. Founder Service Agreement

For companies that are just getting started: The Founder Service Agreement sets out how a founder will work to build the business and what will happen if there’s a fallout or dispute.

When the company is about to raise its first funding round or starts paying a salary to the founder, you should upgrade your Founder Pledge to a Founder Service Agreement.

The Founder Service Agreement is basically a combination of the Founder Pledge and an Employment Agreement. Like the Founder Pledge, it includes terms about the founder’s duties and obligations toward the company, and how the company’s interests can be protected in case of a breach. But it also has sections that you’d find in an Employment Agreement – such as salary, holiday entitlement and time off.

Arguably the most important thing a Founder Service Agreement does is establish the reverse-vesting schedule for the founder’s shares. The schedule ties the number of shares the founder freely owns to the amount of time they work for the company. For example, if you had 30% of the share capital with a 30-month reverse-vesting schedule, 1% of the shares could vest each month, until all your shares are fully yours.

It might seem against the founder’s interests to have their shareholding subjected to reverse-vesting, but it’s an effective way to protect the company in case there’s a dispute or fallout. Without these provisions, you could end up in a situation where a co-founder leaves with a large amount of equity. This could leave your company less attractive to investors.

Other problems can arise if a large shareholder with voting rights leaves, since they may be able to block key company decisions. Plus, they would benefit from the upside of an exit for their full share allocation, even though they are no longer contributing to building the company. Founder vesting strikes a fairer balance between your performance and/or time committed to the business, and the value realisation of your shares.

3. Intellectual Property (IP) Assignment Agreement

Make sure you have an IP Assignment Agreement with everyone who’s worked on your product or idea without a proper contract in place – this gives your company full ownership over their contribution.

When you first start building your business, there can be a lot of people working on your product and creating intellectual property objects, such as your website, design and logos. These might be co-founders, team members, advisors, contractors and even friends and family.

The IP that contributors create, even if it’s clearly for your business, doesn’t necessarily belong to the business unless you have an IP Assignment Agreement in place. Founders who don’t protect their IP risk an expensive dispute which can make the company less attractive to investors.

An IP Assignment Agreement ensures that any work done for your company, even if it takes place before the company was officially incorporated, legally belongs to your company.

Ideally, you should make sure you have an IP Assignment Agreement in place with everyone who has worked on your product or for your company, even if you don’t consider their contribution to be significant. This can help you avoid disputes in the future.

4. Non-Disclosure Agreement

A Non-Disclosure Agreement protects sensitive and confidential information from entering the public domain.

If you plan to discuss confidential information with people not currently engaged by the company, for example, advisors, partners or potential employees, you should ask them to sign a Non-Disclosure Agreement (NDA).

An NDA is a commitment that the person receiving sensitive information about your business during discussions will not disclose that information to anyone else or use the information for their own benefit. NDAs are common in sectors where a disproportionately large part of the value of the company comes from their intellectual property.

5. Letter of Appointment for Non-Executive Director

Use a Letter of Appointment to appoint a Non-Executive Director and set out their roles and responsibilities. To appoint an Executive Director, use our Employment Agreement.

The letter of appointment sets out the roles and responsibilities of your new Non-Executive Director.

The Letter of Appointment is a straightforward document that covers areas such as the Non-Executive Director’s duties, their compensation, their confidentiality obligations and how the relationship can be terminated.

6. Advisor Agreement

Having the right people around you is crucial. Protect your relationship with a mentor, advisor or coach with an Advisor Agreement.

When you set up your company, it can be invaluable to get specialist advice from an industry or business expert.

How you pay your advisor depends on who is advising you and what they’re contributing. You might agree to pay them in cash, equity or a combination of the two. You can find out more about how much equity you should give your advisor using our analysis of data from hundreds of UK startups.

An Advisor Agreement outlines what you expect from your advisor, for example, whether you want them to help you with networking opportunities or strategic advice. More importantly, you want to define their responsibilities to the company, such as keeping company information confidential.

An Advisor Agreement also covers what happens if they leave or are terminated from the post, and it can also outline the vesting schedule for their equity, if relevant. Vesting ties the amount of equity that your advisor earns to the work they do for the company. For example, you can offer an option to purchase 3% of the share capital, and that right can be earned over the course of months, with 0.1% vesting each month.

7. Consultancy Agreement

Consultancy Agreements are for freelancers, consultants and contractors, that is, anyone external to your business who isn’t your employee. If you need a contract for someone on your payroll, use an Employment Agreement instead.

Consultancy Agreements cover people working for your company who aren’t part of the executive team, long-term advisors or employees. Consultancy Agreements are designed for shorter-term engagements of a few months and for people who aren’t considered employees: people not on your payroll and for whom you don’t pay National Insurance.

While the Advisor Agreement was designed for long-term collaboration with the main purpose being advice or guidance, the Consultancy Agreement is better suited for work that produces a tangible output (deliverables).

The Consultancy Agreement outlines the consultant’s roles and responsibilities, invoicing and payment terms. Take care to include an IP assignment clause to retain the IP rights of anything they produce while working for you.

It’s important that you don’t impose the same expectations you have of your employees on contractors, such as fixed times at an office. This is because they could then be legally considered employees of your business and you’d be liable to pay National Insurance and provide other employee-related benefits.

8. Employment Agreement (with vesting provisions)

As you start to scale, it’s important that everyone working in your company as an employee has a proper Employment Agreement in place.

Employment Agreements are crucial for two reasons:

1. They protect your company by clearly defining both your roles and responsibilities and your employee’s
2. HMRC takes a dim view of what they call “bogus self-employment”, and you could end up with a fine and/or additional tax liability

The Employment Agreement you use for your startup should cover everything you’d expect, such as salary, holiday, job roles and responsibilities. Many startups also grant share options to employees as part of their contract.

If you don’t have a huge budget for salaries, you could consider topping up the total remuneration package with options, as a good way to attract talent to your business. Share option schemes give your employee the right to buy shares in your company later at a fixed price, with the hope that they can directly profit as your startup’s value grows and the share price increases. This can be a good way to motivate your employees since it joins together the interests of your employee and your company.

The Employment Agreement doesn’t replace a separate and full Option Grant Agreement but it already outlines the vesting schedule for these options. The vesting schedule ties the number of options that your employee earns to the work they are expected to do for the company. For example, you can offer an option to purchase 3% of the share capital, and that right can be earned over the course of 30 months, with 0.1% vesting each month.

If you’re employing someone on a more casual basis, a Zero Hours Contract could be a good alternative to a more formal employment contract. They’re only suitable in certain circumstances, for example, if you need to fill a short-term gap. If you’re not sure whether you need an Employee Agreement or a Zero Hours Contract, hit the chat button to ask our experts.

9. Zero Hours Contract

Create flexible agreements for casual staff. Zero Hours Contracts are for temporary, seasonal and short-term workers.

Zero-hours Contracts are also known as casual contracts and they clarify your responsibilities as a company, the rights of your casual workers and how you’ll work together. If you have a pool of zero-hours contractors, you’re not obliged to give them work. And they don’t have to work for you when you ask.

Zero Hours Contracts are helpful when you need to develop a flexible workforce, for example:

• if your busy times fluctuate
• if you can’t predict how many workers you might need
• if your business has seasonal peaks and troughs
• if you sometimes need to bring people in temporarily or at short notice

Zero Hours Contracts are particularly useful for certain types of businesses which need a pool of people who are happy to work flexibly. For example, if you hire hospitality staff for special events or seasonal work, or you use delivery drivers but don’t need them permanently or full-time.

Remember that someone employed on a Zero Hours Contract still has certain employment rights. In particular, they’re entitled to receive at least the National Minimum Wage, paid holiday and they must not be unfairly dismissed or discriminated against.

10. Staff Handbook

Your Staff Handbook contains your company policies and procedures.

In one handy guide, the staff handbook brings together policies required by law such as pay, pensions and holidays, and ‘good to have’ information such as your mission statement and company values.

Every employee should be given a copy of your company policy handbook when they join. This could be a paper copy but nowadays it’s normal to send a digital copy or give staff access to the Handbook as a digital file.

Whenever you update your Handbook, you’ll need to give or send staff the new version.

A Staff Handbook sets out your policies on:

• rules of conduct
• pay
• holiday entitlement
• sickness
• parental leave
• disciplinary procedures
• what will happen if a staff member is dismissed
• health & safety policy
• diversity and equal opportunities

The Staff Handbook is a useful guide for everyone who works for you. It helps people understand clearly what’s expected of them, and what they can expect from you.

You can easily create a Staff Handbook for your company using the SeedLegals Staff Handbook template. Fill in the simple questionnaire to add and customise more than 40 policies and procedures. It’s as easy as that – your Handbook is generated and ready to share in minutes.

A Staff Handbook might also be called:

• Company Handbook
• Company Policy Handbook
• Employee Handbook
• Policies and Procedures

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