Starting your company on the right footing

The few documents that prevent the disputes founders run into later

Most early-stage disputes between founders are not about ideas or effort — they are about things that were never written down. This note explains the small set of documents that put a new company on a sound legal footing, why each one matters, and what goes wrong without it. It is general information, not advice on your own venture.

The shareholders’ agreement

The single most useful document a young company can have. Companies House gives you articles of association, but they are generic; a shareholders’ agreement is the private contract between the owners that says how decisions are made and what happens when things change. It typically covers:

—Decisions. Which decisions need everyone’s agreement, and which the board can take alone.
—Leaving. What happens to a founder’s shares if they leave, fall out, or stop pulling their weight (“good leaver / bad leaver” terms).
—Selling shares. Rights of first refusal, and protection for minority owners if the majority sells.
—Deadlock. How a 50/50 disagreement is broken before it paralyses the business.

Director service agreements

Founders often work for years without a contract with their own company. A short director service agreement records pay, duties, notice, and — importantly — that intellectual property created for the company belongs to the company. Without it, a departing founder may walk away owning the very code, designs or brand the business depends on. It also sets sensible confidentiality and post-exit restrictions.

Trading terms (your terms of business)

Your standard terms govern every sale you make. Good ones fix when payment is due and what happens if it is late, limit your liability to a sensible cap, retain ownership of goods until you are paid, and set out who carries the risk if something goes wrong. The key is making sure your terms — not the customer’s — are the ones that apply, which is a question of how they are presented and accepted. (See our note Your trading terms & contracts, explained.)

Why do them together, and early

These documents interlock: the shareholders’ agreement, the service agreements and the trading terms refer to one another and work best drafted as one bundle, at one fixed price. They are also far cheaper to put in place while everyone is getting on than to negotiate once there is money, momentum, or a disagreement on the table. The cost of doing this at the start is a fraction of the cost of the dispute it prevents.

The founding bundle, at a glance

Shareholders’ agreement — how owners decide, leave, and sell.
Director service agreements — pay, duties, and IP ownership locked to the company.
Trading terms — payment, liability, and risk on every sale.
Drafted together, fixed fee, before you need them.

This note is general information and does not constitute advice on your own venture. We will advise on the right documents for your company in writing, and agree the fee before any work begins.

Barraj Legal — a trading style of Rhys Johns, a barrister authorised & regulated by the Bar Standards Board. Sophia House, 28 Cathedral Road, Cardiff CF11 9LJ