Starting a business is an exciting journey and creative process that requires determination and the drive to succeed. Nevertheless, it's important to handle legal matters correctly to protect your company, your customers, and yourself. This page provides guidance on the essential legal agreements that every startup should take into account and have top of mind.
We will not discuss investment agreements here but instead focus on the essential business contracts that form the foundation of your startup's legal framework.
Non-Disclosure Agreement (NDA)
- What is it? An NDA is an essential tool for protecting your startup's confidential information when sharing it with employees, contractors, or potential partners.
- Why you need it: The intellectual property, trade secrets, and confidential business information of your startup are vital to its success. By having an NDA in place, these assets are legally protected, preventing any unauthorized usage or disclosure. For a more detailed overview on IP we recommend our Intellectual Property sub-page.
- Tip: You can tailor NDAs to fit specific situations, such as for employees, contractors, or partnerships. It's important to be clear about the extent and terms of confidentiality, with a recommended term of between one and three years. Additionally, it's crucial that your startup is able to meet all the obligations outlined in the NDA, including but not limited to returning and/or destroying electronically stored data.
Managing Director Service Agreement
- What is it? Managing director service agreements (Geschäftsführeranstellungsverträge) cover several important aspects, including compensation, vacation time, non-compete and non-solicitation obligations, liability considerations, notice periods, as well as roles and responsibilities. It is important to carefully review and negotiate these terms to ensure that the interests of both parties are protected. From a legal perspective in Germany, managing director service agreements differ from typical employment agreements, which is why we suggest preparing a separate legal document for managing directors.
- Why you need it: For corporations (GmbH, UG, or AG) operating in Germany, managing director service agreements are important to establish a clear employment relationship between a managing director and a startup. This is particularly important in the likely event that the managing director also holds shares in the startup. Moreover, managing directors' salaries can be considered as deductible costs for tax purposes if a proper managing director service agreement is in place.
- What is it? Employment contracts explain the terms and conditions of employment for your team, including their roles, responsibilities, compensation, benefits, non-compete and non-solicitation obligations and the procedures for ending their employment.
- Why you need it: Having clear employment agreements can prevent misunderstandings, conflicts, and potential legal issues between employers and employees.
- Tip: From a German tax perspective it is highly recommended to separate benefits under an employee participation program from the employment agreement. Employee Stock Option Plans (ESOPs) and Virtual Stock Option Plans (VSOPs) should therefore be regulated by a separate agreement.
Independent Contractor Agreements:
- What is it? When working with freelancers or contractors, it is important to have agreements in place that clearly define the scope of work, payment terms, deadlines, and intellectual property rights. These agreements help ensure that both parties are on the same page and can work together effectively towards a successful outcome.
- Why you need it: Having clear contractor agreements is important to protect your startup's ownership of work created by contractors.
- Tip: It is very important to keep these documents up-to-date to ensure that they accurately reflect any changes in your business operations. This means that if there are any changes to your business, such as a new product launch or a change in your organizational structure, you should update your documents accordingly. Additionally, it is essential that you comply with any new legal regulations that may be introduced, as failure to do so could result in legal penalties or other consequences. Therefore, it is recommended that you review your documents regularly and make any necessary updates in a timely manner to avoid any potential problems down the line.
- What is it? Customer agreements are essential for businesses that sell products or services. These agreements outline the terms of sale, payment details, warranties, and return policies. It is important to have a clear understanding of these terms to ensure a mutually beneficial relationship between the business and its customers..
- Why you need it: It is crucial to effectively manage customer expectations and minimize the risk of disputes related to your offerings for a seamless operation.
- Tip: Make sure that your customers understand their rights and responsibilities under German consumer protection laws by communicating your customer agreements in a clear manner, whether it be online or offline.
These important business contracts form the basis of legal protection for your startup. They will assist you in dealing with challenges and seizing opportunities as they arise. While this overview is a good starting point, we strongly advise seeking guidance from legal professionals who can offer tailored advice based on your startup's unique needs and objectives.
For standard contracts we can highly recommend German Standards Setting Institute.
Startup-Bundesverband also offers a database of relevant contracts for startups:
Please be aware that the information provided on this page with regard to legal and tax issues is intended for general informational purposes only. It should not be interpreted as legal or tax advice. We do not provide legal or tax advice, and we strongly suggest that you do your own research or seek advice from qualified professionals.