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The Top 3 Legal Docs Every Startup Needs

Starting a business and introducing a new product to the market is an exhilarating and fulfilling experience. Once your company is established, you may have developed documents covering corporate operations, stock options, and capitalization. However, these documents may not be sufficient, especially when dealing with other businesses (B2B). To attract your first customers, it is essential to have several key legal documents in place. In this post, we'll take a closer look at the three most important documents that you will need. 

1. Terms of Service (TOS)

The Terms of Service (TOS) governs the use of a product or service.  Think of these as the rules that one must agree to and abide by in order to use a service.  Let’s take a look at an example with passwords. The user is in charge of maintaining the confidentiality of their own password. The company wouldn’t be liable for any damage if you used a password that ultimately resulted in your account being accessed without your authorization.  Some of the other topics worth-noting within the Terms of Service are the following: Limitation of Liability, warranty, termination, and intellectual property. 

2. Privacy Policy

A Privacy Policy is a document that discloses some or all of the ways a user gathers, uses, discloses and manages a customer’s data. It’s normally seen cited with the Terms of Service (TOS) but usually a separate document. It covers what information is collected, how that information is used, and if that personal information is transferred to anyone. In addition, this document covers how information is protected and the extent of responsibility for the company. 

3. Service Level Agreement (SLA)

The Terms of Service and Privacy Policy are documents that govern the business relationship between a customer and a company, but it doesn’t explicitly mention what service the company will provide. The Service Level Agreement (SLA) is the contract between a company (who is providing a service) and the end user that defines the level of service expected. If you’re a web application using a Software as a Service (SaaS) delivery model, this document covers the topics related to use of the application such as:

  • Availability - This is the percentage of the year that the app will be available to use. So think about it like a year contains 525,600 minutes. What percentage of that total will the application be down for? So if a provider says 99% availability, that means in total for a year, that’s 5,256 minutes or 87.6 hours. You might think that’s a lot, but if you spread that out over 52 weeks, that’s about 1.6 hours weekly. In addition to system outages due to a problem that are covered within these 87.6 hours, there’s also regularly scheduled system maintenance that’s normally scheduled off normal hours.
  • Backups - Defines how often the application is backed up, retention of the backups, and the restore obligations and processes. This is important for larger businesses that have compliance and security procedures they have to follow to purchase any cloud-based application.
  • Support - This section defines what the company will do if problems and errors are found within the application. This includes communication channels, mitigation plans, response times, and processes.

As your startup grows, there may be requirements to create additional agreements to further define the business relationship between the company and its customers. That includes documents like a Non-Disclosure Agreement to protect company IP, an End User Licensing Agreement to define what is being licensed to the customer, and also a Master Services Agreement, which defines the future transactions that will be performed.

Generally, the best place to start is not to mistake this for legal advice and consult with a licensed attorney who can help you. There you can talk through what your startup may specifically need and get the documents customized based on your business. Most lawyers will do an initial meeting and consultation for free to get to know you. Take advantage of that and have a few different conversations before picking a lawyer and getting down to work. Best of luck!