In the fast-moving world of tech startups, having the right legal documents is critical for attracting investors and avoiding costly mistakes. Here’s a quick overview of the 7 essential legal documents every startup needs to prepare for fundraising:

Looking for the full picture beyond fundraising? Our complete legal document checklist for tech startups walks through every document from formation to first hire, with the deadline for each.

1. Certificate of Incorporation: Establishes your company legally, detailing its name, purpose, stock structure, and more. Most startups opt for Delaware incorporation due to its business-friendly laws.

2. Company Governance Documents (Bylaws): Outlines your management structure, decision-making processes, and board protocols to ensure smooth operations.

3. IP Rights Agreement: Protects your intellectual property and ensures the company owns all innovations created by founders, employees, and contractors.

4. Non-Disclosure Agreement (NDA): Safeguards sensitive information shared with third parties.

5. Term Sheet: A non-binding document that outlines the key terms of an investment, including valuation, ownership, and control rights.

6. Stock Purchase Agreement (SPA): A binding contract that finalizes the sale of shares to investors, detailing transaction terms and representations.

7. Investor Rights Agreement (IRA): Establishes ongoing investor rights like board representation, financial reporting, and preemptive rights.

Why These Documents Matter:

These documents ensure legal compliance, protect your intellectual property, and build trust with investors by showing your startup is well-organized and prepared for growth. They also help prevent disputes and clarify expectations between founders and stakeholders.

Quick Comparison Table:

Essential Legal Documents Every Startup Needs

1. Certificate of Incorporation

Specific to corporations seeking to incorporate in Delaware.

The Certificate of Incorporation legally establishes your startup and provides crucial details that investors use to evaluate your business.

If you have not incorporated yet, our Delaware C-corp formation page covers what a complete formation includes, from the certificate itself through founder stock.

Key Components

Here’s what you’ll need to include:

• Company Name: Must be unique and include a corporate suffix like "Inc." or "Corp."

• Business Purpose: Use broad language to keep your options open for future operations.

• Authorized Shares: Specify the number and types of stock your company can issue.

• Registered Agent: Designate a legal contact for official correspondence.

After drafting these details, ensure the certificate complies with the filing requirements of your chosen state.

Filing Requirements by State

State-specific rules can influence your incorporation strategy. For example, Delaware is a top choice for tech startups, with roughly two thirds of Fortune 500 companies incorporated there. Delaware’s system offers several benefits:

Other states have their own unique requirements:

• California: Requires specific business objectives; $100 minimum filing fee.

• Nevada: Known for its favorable state laws.

• Texas: Charges $300, the highest of the states listed here.

Most venture capitalists prefer tech startups to be structured as C-corporations registered in Delaware. This setup supports future funding rounds and potential IPOs. Delaware also allows a broad clause for "any lawful business activity", offering flexibility.

To simplify the process, consider working with compliance experts who understand the nuances of state-specific requirements. Proper incorporation is a critical step in preparing your startup for investor interest.

2. Company Governance Documents

Clear and well-structured governance documents highlight your startup's ability to operate efficiently and make sound decisions.

Management Structure

Poorly defined management structures are a recurring reason early companies come apart, and the base rate of failure in tech is high enough that the documentation is worth getting right at the start.

Here are some key elements to include:

A well-defined structure not only strengthens your company’s foundation but also aligns with what investors look for.

Meeting Investor Standards

Investors closely examine governance documents to assess your company’s readiness and organizational maturity. Strong governance practices tend to correlate with better access to strategic opportunities and steadier performance.

Your governance documents should focus on:

• Shareholder Protection Voting rights and procedures Access to company information Regular communication channels Safeguards for minority shareholders

• Transparency Measures Financial reporting guidelines Detailed board meeting records Disclosure of major events Policies for handling conflicts of interest

• Risk Management Internal control systems Compliance monitoring processes Crisis response strategies Succession planning frameworks

"Good governance is ultimately what is right for the company, for the long-term health of the company." (Marc Hodak, Partner, Farient Advisors)

To ensure governance remains effective:

1. Keep thorough records of board meetings.

2. Share board materials ahead of time to support informed decision-making.

3. Regularly review and update governance documents to reflect business growth and regulatory changes.

3. IP Rights Agreement

Intellectual property is a cornerstone of tech startup value. A solid IP Rights Agreement ensures complete ownership of innovations while reassuring investors.

In practice this is the PIIA. Our PIIA page sets out what it has to cover and who has to sign one.

Key Terms to Include

When drafting an IP Rights Agreement, make sure to address the following:

"It is a basic and inexpensive corporate hygiene that more often than not gets overlooked by founders as they focus to grow their enterprise"

Essential IP Documentation for Investors

In addition to the agreement itself, having proper IP documentation strengthens your case for protecting intellectual property. Essential documents include:

• Proprietary Information and Invention Assignment Agreement (PIIA)
  Signed by all founders, employees, and contractors, this ensures all work products belong to the company and sets clear ownership boundaries.

• Non-Disclosure Agreements (NDAs)
  These agreements are crucial for employees and third parties to protect confidential information and proprietary data.

• IP Registration Records
  Includes patent applications and grants, trademark registrations, and copyright documentation to establish formal ownership.

To ensure your IP remains protected, consult with experienced intellectual property attorneys early in your startup's lifecycle. This can help you sidestep common mistakes that might discourage investors.

4. Non-Disclosure Agreement

An NDA (Non-Disclosure Agreement) is a crucial legal document for safeguarding your startup's sensitive information during investor discussions. It not only protects your assets but also helps establish trust with potential investors.

Key Components of an NDA

An investor-focused NDA should include the following elements:

The document should be clear and enforceable to avoid misunderstandings.

Tips for Using NDAs with Different Investors

Tailor your NDA approach depending on the type of investor:

• Venture Capital Firms: These firms often avoid signing NDAs early on to avoid potential conflicts with their portfolio companies. Be prepared for this and focus on building trust through other means.

• Angel Investors and Family Offices: These groups are usually more open to signing NDAs. Keep the terms balanced to maintain a positive relationship.

• Strategic Investors: Almost always insist on an NDA before sharing proprietary technology or detailed market strategies to protect your competitive edge.

Where an NDA does get signed, it should be narrow enough that the investor can still run real diligence: a deep-tech company can protect the mechanism behind its core technology while still opening the books, the cap table and the customer pipeline.

Consult with legal experts to create an NDA that protects your interests while remaining investor-friendly. NDAs are a standard practice, so don’t overlook their importance in safeguarding your startup’s future.

5. Term Sheet

A term sheet is a non-binding document that lays out the main investment terms and sets expectations between a company and its investors. It acts as a bridge between initial investor interest and formal agreements by defining the key terms of the deal.

Standard Terms

Term sheets generally cover two main areas: economic terms and control terms. Below are the critical elements typically included:

Most current term sheets use founder-friendly non-participating preferred language. This document is crucial for solidifying investor relationships with clearly defined terms. Early-stage investments (angel rounds) sometimes proceed without a formal term sheet.

Term Sheet Strategy

Negotiating a term sheet goes beyond just understanding the standard terms. A thoughtful strategy can help secure better terms for your company. Here’s how:

• Create Competition
  Engaging multiple venture capital firms at the same time can improve your leverage during negotiations.

• Focus on Key Terms
  Andrew Beebe, Managing Director at Obvious Ventures, highlights the importance of relationships: "The most important term in the term sheet is not a legal one - it's really who you're working with." Prioritize critical terms like valuation, ownership structure, board composition, protective provisions, anti-dilution clauses, and information rights.

• Negotiate Smartly
  Shanna Tellerman advises founders to address key terms early on: "I prefer to discuss as many key terms as possible during the term sheet stage - or even before if the investor is asking - to help ensure both parties are on the same page." When negotiating, keep these tips in mind: Limit "no shop" clauses to 30 to 60 days. Opt for broad-based weighted average anti-dilution terms. Ensure board composition allows you to maintain control. Push for clear information and transfer rights. Favor discretionary dividends over fixed or cumulative ones.

Matthew Bartus, a partner at a leading VC firm, advises:

"Focus on what's important, negotiate and resolve the important points early, get the deal closed as quickly as possible and get back to growing the company."

Work closely with experienced legal counsel while staying actively involved in the negotiation process. This ensures that the final terms align with your company’s goals.

6. Stock Purchase Agreement

A Stock Purchase Agreement (SPA) is the final document that seals an investment deal, outlining the terms for selling shares in a company. It’s a binding contract that ensures both parties - investors and the company - are on the same page regarding the transaction.

Key Sections to Include

Every SPA must address critical elements to ensure legal clarity and protect investor interests. Here’s a breakdown of the essential sections:

Having legal counsel review these sections is crucial to avoid errors or omissions.

How SPAs Vary by Funding Round

As companies move through different funding stages, SPAs become more detailed to address investor needs. Understanding these variations matters, because a Series A round is large enough that the paperwork carries real consequences.

Seed Round SPAs tend to be straightforward, typically including:

• Basic share purchase terms

• Limited representations and warranties

• Simplified closing conditions

• Standard indemnification clauses

Series A SPAs, however, are more detailed and include:

• Rights and preferences for preferred stock

• Stronger investor protections

• Registration rights for future stock offerings

• Information access provisions

• Pro-rata participation rights

Take Facebook’s early funding as an example: in 2004, Peter Thiel invested $500,000 for roughly a 10% stake and a board seat. This demonstrates how the terms set in a first round can shape a company for years.

Tips for a Smooth SPA Process

To ensure your SPA is well-executed, startups should:

• Perform thorough legal and financial due diligence

• Use clear and precise language in all terms

• Include robust indemnification clauses

• Follow securities laws carefully

• Be transparent during negotiations

• Customize the SPA to fit your industry and company size

Working with experienced legal professionals ensures your SPA is thorough and protects your interests. Up next, we’ll dive into the Investor Rights Agreement to explore how investor protections go beyond the SPA.

7. Investor Rights Agreement

The Investor Rights Agreement (IRA) (and other NVCA “shareholders’ agreements” - VA and ROFR) plays a key role in protecting both investors and startups. It lays out the rights and responsibilities that shape the ongoing relationship after an investment is made. This document builds on earlier agreements to provide clarity and structure for the future.

Standard Rights

IRAs typically include several essential protections:

"An investor rights agreement (IRA) is a vital document for any startup that raises venture capital and should be drafted with care and attention to detail".

These rights provide a foundation for more detailed discussions and negotiations.

Rights Negotiation

Once the basic rights are established, founders and investors negotiate terms to strike a balance between operational control and investor oversight. The goal is to protect the company’s ability to operate effectively while addressing investor concerns.

Key Protections to Consider:

• Insurance for directors and officers

• Key person insurance policies

• Employee confidentiality agreements

• Invention assignment clauses

Strategic Points for Negotiation:

• Maintain operational control while allowing for investor input.

• Structure information rights to avoid exposing sensitive competitive data.

• Balance preemptive rights with the flexibility to secure future funding.

• Set realistic thresholds for approving major transactions.

In practice, the harder investor rights tend to appear once a single investor is taking a double-digit percentage of the company in an early round.

Best Practices for Negotiation:

1. Set Clear Boundaries
   Work with legal experts to define non-negotiable terms that protect both the company’s autonomy and investor interests.

2. Follow Market Trends
   Current norms favor weighted average anti-dilution clauses over full-ratchet provisions.

3. Focus on Long-term Partnerships
   Effective IRAs should address immediate funding needs while fostering strong, lasting relationships with investors.

For startups drafting their first IRA, standard provisions often include:

• Annual and quarterly financial reports

• Access to company records

• Updates on significant business changes

• Observation rights for board meetings

These elements promote transparency and protect the interests of both parties over time.

Conclusion

Each document in this checklist is essential for preparing your startup for fundraising. A strong legal foundation not only protects your business but also signals to investors that you're ready for growth.

Document Checklist Summary

Here's a quick recap of the key documents and their purposes:

"Fellow is transforming legal services with a subscription-based approach - no billable hours, just complete dedication. They seamlessly integrate with our team, providing support whenever we need it. This is what legal services should look like!" - Bara Kubinova, Lively Cycle | Prague / San Francisco

Legal Support Options

Once your documents are in place, finding the right legal partner is the next step. Expert legal guidance is essential for handling the complexities of startup documentation. Modern legal service providers now cater specifically to the needs of tech startups. For example, Fellow offers fixed-fee services tailored to the goals of founders in the San Francisco Bay Area.

• Predictable costs with fixed-fee structures

• Expertise in both US and international business operations

• Solutions-focused support for complex issues

• Fast response times for urgent matters

"Having a lawyer available by phone and through messaging on short notice has been tremendously valuable, enabling us to make decisions quickly and focus on our business." - Jan Cerny, MBA Consult | Charleston

The right legal partner brings together technical expertise and practical business insight, ensuring you're fully equipped for your fundraising journey.

Work through this with a startup lawyer

Fellow is a San Francisco law firm for founders. Formations, financings, equity and commercial contracts at flat fees, with answers in hours rather than weeks. See what a Fellow startup lawyer handles, check the prices, or talk to us this week.

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