This guide breaks down the essential contracts for early-stage startups, including co-founder, contractor, and first customer agreements. It details the seven critical clauses to master—like IP assignment and limitation of liability—and explains how to avoid common mistakes like verbal deals and using bad templates. Founders will learn how to review contracts confidently and when to hire a lawyer.
Key takeaways
- Always get IP assignment in writing from everyone before work begins.
- Codify co-founder equity with 4-year vesting and a 1-year cliff from day one.
- Make your Scope of Work ruthlessly specific, including deliverables and exclusions.
- Insist on a 'Termination for Convenience' clause for tactical flexibility.
- Review all third-party contracts; never sign vendor or customer paper blindly.
- Use a reputable startup lawyer to create your core contract templates.
Every startup is an interlocking set of promises. You promise co-founders equity for their commitment. You promise investors a return for their capital. You promise customers a solution for their money. Contracts are the tools that turn those promises from ideas into legally enforceable assets.
Getting contracts wrong is a classic, unforced error that kills promising companies. A handshake deal with a freelance developer can result in them claiming legal ownership of your core product. An ambiguous customer agreement can lead to endless, unpaid scope creep. Messy or missing paperwork is one of the fastest ways to fail investor due diligence.
This is a founder-specific guide to the contracts you'll actually face in the first two years. We'll cover what must go in them, the non-obvious insights from experienced operators, and the common mistakes that sink startups.
Before you're negotiating enterprise master service agreements, you'll encounter five key documents. Get these right, and you'll build a solid legal foundation for everything that follows. 1. Co-Founder Agreements (The Pre-nup)
This isn't one document, but a set: your corporate bylaws, restricted stock purchase agreements, and intellectual property assignment agreements. Together, they codify the business pre-nup between you and your co-founders.
Equity and Vesting: This is non-negotiable. All founders must have their equity vest over time. The standard is a 4-year vesting schedule with a 1-year "cliff." This means you get 0% of your equity until your first anniversary, at which point you get 25%. The remaining 75% then vests monthly over the next three years. This protects the company if a founder leaves early.
IP Assignment: Every founder must formally assign all related intellectual property they create to the company itself. This ensures the company, not an individual, owns the code, designs, and brand.
Roles and Responsibilities: While not always in the legal docs, a separate co-founder working agreement…
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Frequently asked questions
- Can I use a contract template I found online?
- It's a huge risk. Free templates can be outdated, state-specific in the wrong way, or missing critical clauses like IP assignment. Use templates from reputable startup law firms or platforms like Clerky, and have your lawyer approve your standard versions.
- What's the most common contract mistake founders make?
- Relying on verbal or 'handshake' agreements, especially for co-founders or early developers. This creates massive IP and equity ownership risks that can kill a company or an investment round during diligence.
- How much should I cap liability at in a contract?
- A standard, defensible position is to limit liability to the total fees paid or payable under the agreement in the preceding 6 or 12 months. This prevents a single contract dispute from bankrupting your company.
- When do I actually need an NDA?
- Use NDAs sparingly. Never ask a VC to sign one for a pitch. Use one only when you must share sensitive, non-public IP—like source code, proprietary algorithms, or detailed financial data—with a potential partner or vendor for them to evaluate a deal.
