We live in a society governed by rules: laws, codes of conduct, codes of good practice, decrees, contracts, etc. Like it or not, these rules affect our everyday behavior and a sample of this is that no one goes to work naked (although there is no law against it!).
Whether we are in our “place” of work or at home discussing with our partner about whose turn it is to wash the dishes, we negotiate contracts every day. A contract is nothing more than the agreement of wills between at least two people to do, not do, give, or not give something.
But preventing conflicts or misunderstandings is just one of the various functions performed by contracts in our society. Since the beginning of the exchange of goods (greetings to Marco Polo), contracts also had an economic importance that continues today, even though it has changed the concept of goods and channels for this exchange.
Thanks to contracts, the risk of abusive behavior was reduced, which led people to trust each other because there was a performance guarantee in the contract (penalty clauses). The confidence generated (today scale of stars, hearts or thumbs up) led to the exchange of goods to the levels and dimensions of the current global era.
But enough history for now, here are the top 5 reasons why you should use contracts in your startup:
1. You can define in detail the relationship with your user / customer / supplier / employee
A contract serves as proof of the existence of a relationship between those who signed, and also allows you to set rules to follow before, during and after the relationship with your users, customers, suppliers, employees, etc.
Imagine that you have outsourced your software development startup, a contract allows you to set the developmental stages, delivery times, fees and payment deadlines, completion of the development, all before you start writing a line of code.
2. It allows you to set a layer on top of rules established in legislation
Imagine that you and your co-founder decide that the decisions to be made in your startup are governed by majority, legislation (with some exceptions) allows certain decisions to be made by simple majority and others require reinforced majority.
However, there are probably decisions that you nor your co-founder want to be taken on the basis of the majority laid down in legislation (for example to sell your shares in the same conditions as offered to an investor, or the ability to force all members to sell if you have received a good deal), these agreements can be included in a contract, they are known clauses Tag Along and Drag Along.
3. It allows you to identify beforehand sources of conflict and possible solutions
We return to the example of outsourcing your startup’s software to an IT consulting firm. Imagine arriving at the delivery date for testing and no delivery occurs or is detected and reported a bug, but is not fixed by the deadline set in the contract.
A well-drafted contract would have to be able to solve any conflict that could have been foreseen before signing, as the penalty for late day who fails to comply, the possibility of withholding quotas until the bugs are repaired, etc. All this, while being flexible enough to resolve those conflicts that were not foreseeable at the time of signing, such as the possibility of notifying a breach and give a deadline for this is resolved, and if the defaulting party is stubborn and refuses to comply, to terminate the contract and not be bound for the duration of the contract to a stubborn and defaulting party.
4. It allows protection
Imagine that you hire a freelancer to design your website, logo, etc. or consultancy IT has given you the software and it is not yours, or your neighbor has helped you make a video about your business idea and now he won’t let you use it without paying.
A contract allows you to establish and protect, among other things, the intellectual property of your startup (software, logos, designs, etc) especially in the seed stage, where these assets are probably the only ones you have and are what counts to increase your startup valuation.
5. It allows you to choose where you want to solve your problems
Imagine that the web designer you hired is in Bali and has not given you the work according to the agreed specifications.
Are you going to go look for him or her in Bali?
A contract allows you to choose the place and the law governing your relationship with your user / customer / supplier / employee. You should consider that if you have to go to trial in Bali, the fees of a lawyer there will not be the same as those of a Spanish lawyer. You now must add to your expenses. Last but not least, do not forget that you do not speak Balinese so your spending increases with translations, not to mention that its legislation will result completely alien.
Starting Legal is a web platform that lets startups create, sign and sign invite all parties with full legal validity and send contracts and other legal documents at a reasonable price, from anywhere and at any time. It helps you start and manage your startup in compliance with all the requirements of the law.
We currently operate in Spain and are working hard to upload contracts in English. In the meantime, we are offering foreign entrepreneurs that want to come to Barcelona the possibility to register for a small fee which would include tailor made contracts that would be uploaded in their profiles.
Founder & CEO of Starting Legal.
Organizer of Legal Hackers Barcelona
Lawyer and member of the Bar Association of Barcelona, passionate about law and advocacy, as well as technology and innovation. She has developed her career, both in law firms and companies, especially in the areas of civil and corporate law, feeling very comfortable and enjoying her job in both areas. After 10 years practicing law she challenge herself to redesign legal services and improve the customer experience, founding her own startup: Starting Legal.