Legal consultation for startups
Our firm advises entrepreneurs and startups in setting up a company and drafting various agreements, emphasizing protection of the company’s intellectual property even in its early stages.
Below are the main early-stage agreements and legal instruments included in our consultation and guidance.
Whether the new venture is a partnership or a newly established company, a founders’ agreement is necessary for regulating the entrepreneurs’ legal and business relationship. The founders agreement specifies the partners’ rights and obligations and should concern the following issues: division of powers and roles, decision-making mechanism, financing and funds, intellectual property (particularly patents), division of shares among the company’s partners and various arrangements regarding liquidation or separation. Without a founders agreement, the entrepreneurs/partners could find themselves in a series of legal disputes that would impair the joint venture’s proper management to the point of liquidation or violate the founders’ rights upon the new partner’s or investor’s entry. The founders agreement and the decisions pursuant to its signing can have tax implications that must be considered when launching the venture/company.
A company’s Articles of Association (AOA) are in fact an agreement between the company and its shareholders and between the shareholders and themselves. It regulates various company management issues. To register a company in the Company Registry, one must submit the company’s AOA signed by its founders and certified by a lawyer. These initial AOA must include the following sections: company name, its business purpose, shareholder liability and registered and issued share capital in the company. Beside this basic information, the AOA should also include provisions regarding the company’s management mechanism and decision-making process, profit distribution policy, shareholder employment, protection against dilution, conditions, and a mechanism for liquidating the company and conditions for transferring shares. These bylaws are binding not only on the company’s founders at the time of their drafting, but also on all future company shareholders and officers. Future decisions pursuant to the AOA are binding on all shareholders; so, it is important to formulate what the founders’ rights are in the business’s advanced stages. The company founders’ arrangements as per the founders’ agreement should also be anchored in the AOA. Under Israeli law, a company’s articles of incorporation can be changed only with general assembly approval and any such change must be reported immediately to the Companies Registrar. The majority required to make such changes can be stipulated in the AOA.
Registering a company as a limited liability company makes it an independent legal entity, which carries with it several advantages. The main one is the entrepreneurs’ immunity from a personal claim in case of debts and losses or any other claim against the company (so long as they acted in good faith under reasonable discretion). Second, the taxes imposed on a limited liability company’s profits are lower than those imposed on an independent entrepreneur. Before applying for a company’s registration, one must choose a name for the company, draft the company AOA (see Company Charter above), set up a board of directors and pay registration fees. A list of several possible names for the company should be prepared and then reviewed by a lawyer specializing in trademarks in order to make sure the company name does not infringe an existing trademark and can be trademark-protected. The company’s registration application form must then be submitted to the company registrar together with the following accompanying documents certified and signed by a lawyer: shareholders declaration, first directors’ statement, company AOA, submission form and payment confirmation of registration fees. At the end of the registration process, the company will receive a certificate of incorporation and a registered number (company number).
Engagement Agreement (Customer/Supplier)
As a startup, you will most likely find yourself on both sides of the aisle, both as suppliers (of the product or service you provide) and as customers of service providers or sellers of goods. An engagement agreement regulates both parties’ obligations and rights and must be signed before the engagement begins. Once an agreement is in place it increases the commitment to execute the transaction and assists in the event of a dispute, whether the dispute reaches the court or not. The agreement should include reference to the type of services or goods and their scope, date of delivery, duration of the contract, costs and terms of payment, liability, definition of the ownership of the product or works created thereunder, terms of cancellation of the contract and remedies for breach of contract.
The employment contract defines the parties’ agreements regarding the employee’s/employer’s rights and obligations beyond what is stipulated in law or in an applicable collective agreement, when such exists. The contract sets forth employment duration, position, employee supervisor, working days and hours, compensation, social rights and more. For startups, there are two issues to consider in this agreement: employee inventions (service inventions), a clause designed to ensure that the intellectual property rights developed by the employee on the job belong to the employer; non-compete, a clause designed to prevent the employee from using the company’s trade secrets, such as products under development, a list of unique customers and suppliers as well as other intellectual property rights.
Confidentiality Agreement (NDA)
A confidentiality agreement is usually signed prior to the start of pre-engagement negotiations. This agreement obligates signatories to keep the sensitive and confidential information transmitted to them in full confidence and not to use such information except for the defined purpose of the contract. The agreement is intended to allow the disclosure of ideas, technology, data or any other confidential information in various business scenarios, such as attracting investors, examining collaborations and working with suppliers in a manner that ensures that secrets are not leaked. In general, a confidentiality agreement defines the type of information transmitted, the purpose of the transfer, the limits of its use, the duration of the confidentiality period and what ultimately happens to the information, which should be determined on a case-by-case basis. This agreement is especially important in cases where a patent or design application has not yet been filed, or in cases involving a trade secret, method or product that cannot be protected by registration.