By now if you don’t know what a start-up is, it’s a crying shame, as the start-up culture in
India is in its prime of life. India has now 54 unicorn companies and is ranked world number
three beating our colonial master UK (currently number four) and is now only behind China
and the US (according to Hurun Global Unicorn Index 2021).
Indian entrepreneurs are surfing well on the rising wave of start-up culture as they are
supported by the government’s ‘Start-up India’ and ‘Make in India’ programs that have
encouraged comparatively simplified start-up compliances. However, with the rising
the complexity of technology and the worldwide nature of transactions, it’s more important than ever
for emerging businesses to have a solid legal base, the foundation of which is laid by certain
basic agreements, such as-
Founders’ agreement
It is basically a document that sets out the details of the position of founders of any business
entity, it contains a roadmap of roles, responsibilities, operational structure of the business
that needs to be adhered to, just like a preamble for the constitution. However, many a time
this agreement is not there or is drafted poorly by the start-ups which should be avoided at all
costs. As an entrepreneur, one should not meddle with these foundational documents by
giving excuses of ignorance or of cost-cutting.
Employment agreement/ Service Agreements
These agreements are kept to clarify the employment relationship between the employer and
the employee. It ensures that both the employer and the employees are informed of their
rights and responsibilities, as well as binding the parties to the company’s laws. Many start-
ups do not have such agreements or by-laws in place, which are rules that regulate how the
firm operates. As a result, they have trouble working properly. This has serious financial
consequences, and the aftermath makes it impossible for the company to survive.
Confidentiality Agreements or Non-Disclosure Agreements (NDAs)
NDA is a budget-friendly technique to protect unnecessary exploitation of one’s business
concept. These days more & more work is outsourced to project-based employees or to
freelancers who cannot be entrusted with full accountability. The startups expose to risks
like the theft of ideas and other confidential business information which might be used
against the business. Hence, to avoid such scenarios, NDAs need to be drafted and used by
start-ups while discussing critical business information with people outside the organization.
Intellectual Property Agreement
This is a specific further addition to the NDAs, as the whole basis of the start-up drive intends
to pursue advancement, improvement, and commercialization of new products or processes,
driven by innovation which is nothing but their Intellectual property. The initial step for any
Start-up is to assess and focus on the IP Rights engaged with its business-like- Trademarks,
Copyrights, Designs, or Patents assume a vital part in any industry. Now and then IP
Rights are the main resource accessible and mystery ingredient with a Start-up. New
businesses can use the ‘Plan for Start-ups Intellectual Property Protection (SIPP) under the
Start-up India drive. Thus, having complete ownership and utilization of your IP is of utter
importance.

User Agreement/ Privacy policy
These days almost every business holds an online presence through a mobile app or via
the website. Consequently, it is essential to have an agreement between the app/website owner
and the user/customer, who is going to avail of the respective goods and services. It includes
limitations on how the site can be used, disclaimers, liability limitations, disclosure on the
site’s privacy policy in dealing with customer information, copyright protection warnings. It
also mentions the jurisdiction of the adjudicating authority in case of any dispute, which is
generally the principal place of the website/business owner.
Apart from these agreements, a proper winding-up or exit strategy should be designed by the
business owner. Although, no entrepreneur creates a start-up only to shut it down many times these entrepreneurs hold unusually high expectations from their business model that
they don’t want to even consider the scenario as to what will happen if their start-up fails.
This delusional attitude must be done away with and the whole winding-up process ought to be
made explicitly clear to all the stakeholders well in advance, to avoid any future litigations
based on personal grudges.
Lately, it has been observed that due to a lack of legal awareness various start-ups do not pay
much heed to these basic agreements and often get entangled in complex situations, either
due to the absence or poor draft quality of these agreements. Having these agreements in a place with proper drafting can avoid many of the common pitfalls that a start-up may encounter and can ensure the long-term efficacy of the business.

BY

Atul Bhatt
LLB, 3rd year
Campus Law Centre
University of Delhi