Documentation is a process of Preparation of a set of commercial and financial documents that record or support a business transaction.
Documentation is a set of documents provided on paper, or online, or on digital or analog media, such as audio tape or CDs.
Professionals are appointed to prepare documents necessary for the company and it is extremely essential for every organisation to properly prepare all the documents in order to present truthful and correct information to the users. For a Start-up, documentation has its own role to play. There are basically 4 types of documents that need to be prepared:
Going by the definition term sheet is a document representing all material information regarding terms and conditions of a business agreement. The terms and conditions contained in this document are not binding to any of the parties, as they are subject to modification through further negotiations before the final agreement is actually prepared and signed. Starters’ CFO can also help you in preparation of Shareholders Agreement.
The different categories of term sheets have varying structures and features. For example a term sheet prepared for funding will contain the following:
- Purchase price
- Proposed timing and process
- Conditions to closing
- Confidentiality, exclusivity and other key terms and conditions, if applicable
Term sheets are non-binding and merely acts as a comprehensive agenda for further negotiations and a template for drafting the actual agreement.
Components included in Term sheet
Term sheet highlights the following:
- The valuation of the company
- Form of investment by investors
- The amount and timing of investment
- Price-based anti-dilution protection in connection with future sales of the company’s stock
- The number of directors the investors can elect
- Vesting of the founders’ stock
Shareholders Agreement is a contract between the owners /shareholders of a firm, defining their mutual obligations, privileges, protections, and rights, and usually it comprises of the firm’s articles of association or bylaws. The shareholders’ agreement is intended to make sure that shareholders are treated fairly and that their rights are protected.
A shareholders’ agreement basically is an arrangement among a company’s shareholders describing how the company should be operated and the shareholders’ rights and obligations are also described in it. It also includes information on the regulation of the shareholders’ relationship, the management of the company, ownership of shares and privileges and protection of shareholders. For any information about Non-Disclosure Agreement, Contact us.
Reasons for Shareholders Agreement
Basic functions of Shareholders agreement are:
- setting out the shareholders’ rights and obligations;
- regulating the sale of shares in the company;
- describing how the company is going to be run;
- providing an element of protection for minority shareholders and the company;
- defining how important decisions are to be made
Essentials of Shareholders Agreement
- The agreement works in conjunction with a company’s articles of association
- A shareholders’ agreement can contain any arrangement agreed between the shareholders and can vary what would otherwise be the legal position without it.
- The shareholders agreement will remain private and confidential and will not be open to view by others such as creditors or non-member employees
- The existence of a shareholder agreement can assist in raising finance from banks or creditors and also demonstrates the stability of the business to other potential partners.
Non Disclosure Document
A nondisclosure agreement is a legally enforceable contract that creates a confidential relationship between a person who holds some kind of trade secret and a person to whom the secret will be disclosed. NDAs are fairly common in many business settings, as they offer one of the most sure-fire ways to protect trade secrets and other confidential information meant to be kept under wraps. However, the confidential relationship often will refer to information that is to be shared between the parties but should not be made available to the general public. Starters’ CFO can also help you with co-founders agreement.
Elements of Non Disclosure agreements
Basic elements of Non-Disclosure agreements are:
- Definition of confidential information
- Exclusions from confidential information
- Obligations of receiving party
- Time periods, and
- Miscellaneous provisions.
Functions of Non-Disclosure Agreements
- NDAs protect sensitive information.
- In the case of new product or concept development, a confidentiality agreement can help the inventor keep patent rights.
- Confidentiality agreements and NDAs expressly outline what information is private and what’s fair game.
Every nondisclosure agreement provides a list of the types or categories of confidential information to be protected in the agreement. The purpose is to establish the boundaries, or subject matter, of the disclosure, without actually disclosing the secrets.
Whenever you are launching a new enterprise, there is nothing more important than having a clear agreement amongst the founders around a handful of key issues that are critical to your ability to safeguard the future viability of your new enterprise and to raise venture money. The basic key issues cover three really important areas:
- The roles and responsibilities of the founding team,
- Equity ownership and vesting
- Intellectual Property Ownership
During the initial stages of a start-up, everyone seems to be doing everything but before long, different team members become in charge of different departments and hence it is at this stage where conflict of interest arises. So here the co-founders agreement has a role to play which highlights the information regarding who will solve the conflict, who will decide the policies etc. Hence Documentation such as term sheet has its own importance in any organization.
Components of a Co-founders Agreement
- Co-Founder details;
- Project description;
- Equity breakdown and initial capital contributions;
- Roles and responsibilities of each Co-Founder;
- Management and approval rights;
- Non-compete, confidentiality and intellectual property; and
- Resignation, dissolution and removal of directors.
Disclosure of Roles and Responsibilities
This is one of the most important topics to cover, but is one that may seem unnecessary at an early stage, when all the co-founders may be wearing multiple hats. The priority is identifying the areas of responsibility for each co-founder, both to avoid miscommunication and so that each person can be held accountable for their respective areas. What you want to avoid is a situation in which all three co-founders see themselves as the future CEO and the issue goes unaddressed.
Another potential issue is when one co-founder will be more involved in the company than the other(s). It is important to make clear whether each co-founder will devote him/herself to the company full-time, or if the co-founders will be involved to different degrees.
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