Bulletproof Contracts and Board Responsibilities: Protecting Your Startup

Contracts and corporate governance may not be sexy, but they’re essential. One mistake can doom your startup.

Contract Drafting Pitfalls

Poorly drafted contracts are ticking time bombs. Avoid these common blunders:

• Unenforceable non-competes: Overly broad restrictions won’t hold up in court. Keep clauses reasonable in scope and duration.
• No consideration: Restrictive covenants must be supported by something of value. Offer compensation or benefits in exchange for signing.
• Sloppy IP assignment: Clearly define IP ownership in every contract. Trace the chain of title to ensure your startup has full rights.
• Inadequate due diligence: Don’t take the other party at their word. Investigate their background and reputation before signing anything.

Board of Directors 101

As a founder, you wear many hats. When acting as a director, understand your duties:

1. Protect yourself: Get D&O insurance to cover personal liability for board decisions. Don’t serve without it.
2. Be decisive in a crisis: Bankruptcy looming? Tough choices are required. Act swiftly to minimize damage.
3. Maintain good governance: Hold regular board meetings. Keep meticulous records. Follow all legal formalities.
4. Communicate with shareholders: Keep investors informed about strategies and expectations. Transparency builds trust.
5. Know your obligations: Read all company agreements and bylaws. Understand what’s expected of you.

A Holistic Approach

Contracts and governance are just pieces of the puzzle. To safeguard your startup:

• Identify weaknesses: Assess your IP management, corporate structure, and compliance regularly. Address gaps promptly.
• Create an action plan: Develop concrete steps to fix issues. Assign responsibilities and deadlines.
• Conduct frequent audits: Don’t wait for problems to surface. Proactively review contracts, policies, and procedures.
• Prioritize compliance: Treat legal matters with the same urgency as product development or fundraising. Cutting corners could cost you everything.

The Bottom Line

Bulletproof contracts and good governance are startup survival skills. They may not be glamorous, but they’re essential.

Invest time in getting them right. Work with experienced legal counsel. Stay vigilant as your startup grows.

The legal foundations you lay now will support your success for years to come. Build them strong.