NDAs, MSAs, SOWs, ETC - Legal Documents that Every Startup Needs
Today’s post will briefly discuss a laundry list of legal documents that every founder and young startup company needs to consider as they build and grow so that the actions aren’t costly mistakes that result in messy situations in the future. These documents are not exhaustive and do not address every company’s needs, but these are meant to be a true starting point for any company to reduce your risk of serious complications. As always, if you need one of these documents or you have questions about additional documents, email us and we will be happy to discuss your concerns and needs and set you up to continue growing your business.
NDA - Non-Disclosure Agreements
EVERY company should consider having at least one NDA prepared and ready to provide to clients, potential clients, employees, potential partners, etc. To sum it up, an NDA requires the other party to “not disclose” confidential information that you may provide to them in the course of business or in contemplation of business. There are various types of NDAs, so for this post, we will keep the discussion limited to “One-Way NDA, Mutual NDA, and Employment NDA”.
One-Way NDA
A One-Way NDA is meant to protect one party of a situation. This might be common if a company is disclosing confidential company information to a prospective client or partner, and there is little expectation that the other party will be disclosing information in return. A One-Way NDA should be drafted so as to protect the company who is publishing its information with hopes of a benefit, so that the company can be truthful and forthright without the concern that other party will take the confidential information and put it to use without the company’s consent.
The most likely example of when a One-Way NDA would be beneficial is in the company-client relationship. If the company is hoping to secure a client, the company may need to discuss various confidential items to encourage the client that a relationship would be beneficial. However, the client may not need to disclose any information, so one-way protections would be sufficient.
To the inverse, if you are ever presented with an NDA, take a quick look and make sure that it’s not a One-Way NDA if you intend to disclose information.
Mutual NDA
A more common NDA is the Mutual NDA. A Mutual NDA protects confidential information provided by BOTH sides of a discussion. Generally, each side to an arrangement or potential relationship, will disclose confidential information. For instance, if your company is searching for a distributor of your product or a company to build part of your app, or something of this nature, the company will need to describe its situation and needs and the company may require that the other party disclose confidential information to demonstrate that a relationship would be mutually beneficial.
A Mutual NDA is not only the most common due to practicality, but also the most common with young companies because it reduces the legal documents that must be created. A company will inevitably need a Mutual NDA at some point. A company is less likely to need a One-Way NDA, and if a One-Way NDA would suffice, then a Mutual NDA will also suffice. It will simply reduce your ability to utilize confidential information disclosed by the unprotected party.
So if you’re a new company looking to minimize legal costs, start with a Mutual NDA, then consider a One-Way NDA as your legal needs develop and your legal budget increases.
Employment NDA
In addition to having a Mutual NDA, every company should have an NDA that it provides to its employees and independent contractors. A good One-Way NDA or Mutual NDA may work for this purpose, but it something that you may need to communicate to your attorney. This is also the reason why an NDA template may not meet your needs and may create the need for various documents. If you communicate your NDA needs to an attorney, you can likely incorporate the proper terms and provisions into a One-Way NDA or a Mutual NDA, but may templates will not cover your differing NDA needs.
MSA - Master Service Agreement
A Master Service Agreement is generally your go-to, several-page, fully-binding “Contract”. An MSA contains all the key pieces to your agreement. From defining the parties to an agreement, the terms, the services, and the fees to matters such as choice of law, alternate dispute resolution, and indemnity provisions.
Many times, a company can utilize a good MSA as a template for all agreements that are similar. A great MSA may require only that the names of the parties and information related thereto is updated for each client. So if there is one document that you want to make sure your company has drafted by a legal professional, this would be the document.
SOW - Statement of Work
As mentioned above, a great MSA may require very little modification. So if you’re not changing the MSA for each client, how do you address the differences of each agreement. The answer is a working Statement of Work (SOW), “Schedule”, or something similar.
An SOW is often times a short document that is referenced in an MSA, and the SOW is generally an exhibit to the MSA. If you want your MSA to change very little, you will be relying on the SOW to document the differences. For instance, the MSA might state that the “term” or the “fees” are subject to the SOW. Then each SOW drafted will have a different input.
This allows small changes to be made from one client to another, and for modifications to be made as needed without attempting to overhaul an MSA that is generally much longer and complex than a statement of work.
To simplify, a Statement of Work is similar to a movie trailer and the MSA is the movie itself. A trailer or SOW provides the other party with an idea of what to expect and may even provide a fair amount of information. However, the MSA must still be reviewed, similar to a movie being watched, before all the details can be known.
The ETC.
The documents discussed above are just a few of the most important documents for an entrepreneur or young company to consider. Others generally include employment and/or independent contractor agreements, privacy policies and terms of agreement/use (every website, software and app needs these), and licensing agreements.
The goal of this post is to help you think about some of the biggest items needed to operate an early-stage company. If you need assistance with any documents or think that some may not be right for you but just want to make sure, please reach out. A 20 minute phone call could make all the difference for you company.
If you find this series beneficial, be sure to tune in next time for a discussion on Raising Capital!
