“What is the most common mistake startup founders make during early growth? Not establishing a strong legal structure off the bat,” writes Matt Faustman, contributor, in the article, “The Top 7 Legal Documents for Every Startup,” featured on Entrepreneur’s website.

Faustman continues in the article, “While it’s tempting to dig into the vision for your company and start making your idea a reality, it’s important that founders pause and cover their legal bases.”

In the article, Fautsman outlines seven legal documents that new business owners should keep in mind to “avoid costly legal battles down the road.”

  • Articles of incorporation. New business owners risk losing their personal savings by not filing with the Internal Review Service to form a distinct legal entity for their new businesses. New investors will be personally responsible for any income tax bills and legal liabilities if they set up only a sole proprietorship.
  • Intellectual property assignment agreement. An IP assignment agreement might be the main legal document determining whether a startup can attract investments it needs to grow. “Startup founders should have complete ownership of all IP assets in writing to avoid costly claims filed by patent trolls and companies trying to copy your business model, among others,” explains Faustman in the article.
  • Bylaws. To ensure a startup operates “with as little complications as possible,” new owners should formulate their bylaws right away. “Bylaws should establish the internal rules of the company like how to settle disputes, select leadership and determine the rights and powers of shareholders,” says Fautsman in the article. “Most importantly, bylaws should institute voting thresholds for approvals to certain actions by the corporation like electing new board members or entering into debt.”
  • Operating agreement. All co-founders should sign a comprehensive operating agreement, or founder’s agreement, to avoid any conflict that may arise. This agreement should “define the relationship of the founders, provide the expectation that all work will belong to some entity in the future and outline a basic communication and conflict-resolution clause that can help prevent disputes,” asserts Fautsman in the article.
  • Non-disclosure agreement. Before any business transactions/conversations take place with an outside party, new owners should have a non-disclosure agreement available. This agreement will help protect the business by safeguarding any ideas and intellectual property.
  • Employee contracts/offer letters. Make sure to create clean employee contracts and offer letters when hiring new staff. These agreements help make sure the potential hires understand what is expected.
  • Shareholder agreements. If a startup plans to take on private investments, the business should create a shareholder agreement, which determines “the rights of the shareholders and defines when they can exercise those rights,” states Fautsman in the article.

Read the entire article on legal documentation for new startups here.