Founders, startups and business contracts, answered
72 questions on founders and NDAs, liability and insurance, employment and contractor status, and ongoing B2B contracts, answered in plain English.
Founders and NDAs, liability and insurance, employment and contractor status, and ongoing B2B contracts, answered directly, drawn from what growing businesses actually search for.
Founders, startups and NDAs
The documents you skip at the start are the ones diligence asks for later.
Early stage companies need less legal work than they fear and different work than they expect. The set that actually matters: the right corporate structure, a founders agreement with vesting, IP assigned into the company from every founder and contractor, a workable NDA, standard customer terms, and a privacy notice if you handle personal data.
The founders agreement is the one people regret skipping. Equity split, vesting and cliff, roles and decision rights, what happens if someone leaves early, and IP assignment. Agreeing it while everyone is friendly costs a conversation. Agreeing it after a founder leaves costs the company.
IP assignment is the other quiet killer. Work created by a contractor belongs to the contractor unless the contract assigns it. Investors and acquirers check this, and it is expensive to fix retrospectively because you have to find people who may no longer be reachable or friendly.
What legal documents does a startup need first?
Incorporation and share structure, a founders agreement with vesting, IP assignments from founders and contractors, an NDA, standard customer terms, and a privacy notice if you handle personal data. Everything else can wait until there is a reason for it.
What should a founders agreement cover?
Equity split, vesting schedule and cliff, roles and responsibilities, time commitment, decision making and deadlock, IP assignment to the company, what happens on departure including good and bad leaver treatment, and restrictions on transferring shares.
Is a free founders agreement template good enough?
As a structure, yes, and templates from reputable accelerators are decent. The parts templates get wrong are the ones specific to you: unequal contributions, part-time founders, pre-existing IP, and anyone joining later. Those are exactly the situations that generate disputes.
Do we need an NDA?
For genuine disclosure of confidential information before a contract exists, yes, and a short mutual NDA is fine. Do not expect investors to sign one at the pitch stage; most will not, and asking signals inexperience. The stronger protection is usually not disclosing what you do not need to.
What is the best legal structure for a startup?
In the UK, a private company limited by shares is the default for anything expecting investment or growth, because it separates liability and supports share issues, options and investment. Sole trader or partnership works for very early solo work but does not scale into funding.
Where can I get free legal advice for a startup?
Accelerators, some law firms’ startup programmes, and government-backed business support offer free initial guidance, and the ICO publishes good free data protection material for small businesses. Free advice is fine for orientation. For anything you will sign or rely on, get it reviewed by someone accountable for the answer.
Who can set up a contract process for an early-stage startup?
Fractional or embedded counsel, ideally in one engagement that produces the whole set: customer terms, order form, NDA, DPA, and a short playbook. Eliga does this for early-stage technology businesses so the founders stop being the bottleneck on every deal.
Liability, indemnities and insurance
The liability clause is the only part of the contract that says what a failure costs.
Liability is limited by a cap, usually expressed as a multiple of fees paid in a period, plus a set of exclusions for indirect and consequential loss. Around that sit carve-outs where liability is unlimited or separately capped: typically confidentiality, data protection, IP infringement and, unavoidably, death or personal injury caused by negligence and fraud, which cannot be excluded under English law.
Under UCTA 1977, exclusions in standard terms and in consumer contracts are subject to a reasonableness test, so an aggressive cap in your own boilerplate is not automatically enforceable. A cap that bears a sensible relationship to contract value and to your insurance is far more likely to hold up than one that leaves the other side with no meaningful remedy.
Software suppliers should hold professional indemnity cover, and buyers increasingly ask for cyber cover too. Two practical points: check that your cap is not lower than the loss types your insurer expects you to accept, and check that your contract does not commit you to something your policy excludes. An indemnity given without checking your cover is an uninsured promise.
Can a software company be held liable for negligence?
Yes. A supplier can be liable in contract for breach of its obligations and in tort for negligence where it owed a duty of care and fell below the standard expected. Contract terms limit but do not always eliminate that exposure, and some exclusions are unenforceable.
What does a limitation of liability clause look like?
Typically: a cap set at fees paid in the preceding twelve months, exclusion of indirect and consequential loss and specified categories such as lost profits, carve-outs for confidentiality, data protection and IP infringement, and an express statement that nothing limits liability for death or personal injury caused by negligence or for fraud.
What insurance do software developers need?
Professional indemnity is the core cover for advice and services. Public liability covers third party injury and property damage. Cyber cover addresses breach response and related loss. Enterprise customers often specify minimum levels in the contract, so check the requirement before you sign, not after.
What is the difference between an indemnity and a damages claim?
An indemnity is a promise to cover specified losses on a pound for pound basis, usually without the claimant needing to prove breach or mitigate in the ordinary way. It is a stronger and more dangerous commitment than ordinary contractual liability, which is why indemnities should be narrow, capped where possible, and paired with control of the defence.
Should the liability cap cover data protection claims?
That is one of the most negotiated points in SaaS. Customers push for data breach liability to be uncapped or superadded; suppliers push for it inside the cap or at a higher multiple. A common landing point is a separate, higher cap for data protection and security breaches, sized against your insurance.
Employment and contractor agreements
Whether someone is a contractor is decided by how you work, not by what the contract calls them.
Employment contracts, consultancy agreements and contractor terms cover overlapping ground with very different consequences. The label on the document does not decide status. Courts and HMRC look at the reality: control over how work is done, personal service versus a right of substitution, and mutuality of obligation.
For businesses engaging contractors in the UK, the off-payroll working rules matter. Where the client is a medium or large private sector organisation, responsibility for determining status sits with the client, and getting it wrong carries tax exposure. Small companies fall outside that, but status still matters for employment rights claims.
For contract review on the individual side, the clauses that carry the most value are notice, restrictive covenants, bonus and commission terms, IP, and post-termination restrictions. Restrictive covenants are enforceable only so far as they are reasonable to protect a legitimate business interest, which means the drafting has to be proportionate to be worth anything.
Should I get an employment contract reviewed before signing?
If it contains restrictive covenants, a commission or bonus scheme, an IP assignment or an unusual notice arrangement, yes. Those are the clauses that determine what you can do next and what you get paid, and they are much harder to change after signature.
What is the difference between an employee, a worker and a contractor?
It turns on control, personal service and mutuality of obligation rather than the contract label. Employees have the fullest set of rights, workers have a narrower set including holiday pay and minimum wage, and genuine contractors are in business on their own account. Misclassification creates both tax and employment rights exposure.
What should a contractor agreement include?
Scope of services, fees and payment, IP assignment, confidentiality, status and tax responsibility, insurance, substitution rights where genuine, term and termination, and data protection terms if the contractor handles personal data.
Ongoing service and B2B commercial contracts
A rolling arrangement without an end date is a dispute waiting for a reason.
An ongoing service contract covers work that continues rather than a one-off delivery: maintenance, support, managed services, retained work. The clauses that matter most are the ones people leave out: the notice period to end it, how the price changes over time, what happens to work in progress on termination, and what the service actually includes versus what is chargeable extra.
For B2B contracts generally, the useful discipline is to write down what happens when things go normally and what happens when they do not. Most contracts are good at the first and vague about the second, which is why disputes hinge on termination, payment and scope rather than on the substance of the work.
Small businesses often operate on a purchase order or an email chain. That is a contract, legally, but it is one where the terms are whatever can be pieced together afterwards. A one page standard terms document attached to every quote fixes this cheaply.
What is an ongoing service contract?
An agreement for continuing services over time, usually with a rolling or fixed renewable term. It should state the services included, service levels if any, fees and how they change, invoicing and payment terms, notice to terminate, and what happens to data and work in progress at the end.
What should a maintenance or support contract cover?
Scope of covered work and exclusions, response and resolution targets, hours of cover, escalation, chargeable versus included work, spare parts or licence costs, price review, and termination notice.
How do renewals on ongoing contracts work?
Either a fixed term that expires unless renewed, or an auto-renewing term that continues unless notice is given. Auto-renewal is commercially useful but the notice period must be realistic and clearly stated, and in consumer or micro-business contexts fairness rules apply.
What is the simplest way for a small business to contract properly?
One set of standard terms of business, attached to or referenced in every quote and order confirmation, plus a short signed order document for anything above a threshold you set. That combination covers the vast majority of small business work at close to zero ongoing cost.
Still the wrong answer for your situation?
General answers only go so far. If you are setting up a founders agreement, reviewing an employment contract, or sizing a liability cap against your insurance, the useful conversation is about your facts.
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This page is general information about UK and EU commercial practice. It is not legal advice and it does not create a solicitor-client relationship.