In the first months of any startup's life, the founders are busy with the product, customers and funding, and contracts come last on the list: "we'll write them when we grow". Then one founder leaves after a year with half the shares, or a freelance programmer claims ownership of the code the whole product is built on, or an investment round stalls because the investor discovers that the intellectual property is not registered in the company's name. These are not rare cases; they are among the most common reasons startups stumble. The essential startup contracts do not need a big budget, but they do need to be written on time.
In this guide we go through the contracts a startup needs in the order the need arises: from the founders' agreement before incorporation, to intellectual property, employee, customer and investor contracts. For each contract we show why it matters, what it should contain and the common mistake, with a practical example and suggested wording for its key clauses. We close with a timeline, a checklist and frequently asked questions.
The founders' agreement: the most important and most neglected contract
The founders' agreement is the contract that sets the relationship among the founding partners: each one's share, role, what happens if one leaves, and how decisions are made. Its importance comes from the fact that founders usually begin as enthusiastic friends who cannot imagine a dispute, so they put off talking about the hard things. Disputes then come after the company has acquired value, and agreement is far harder by then.
Share allocation and vesting
The most critical element of a founders' agreement is the vesting clause. Instead of each founder owning their full stake from day one, they earn it gradually over several years, so if they leave early they take only what they have earned. This clause protects the company and the remaining founders from a founder who leaves after a few months and keeps a third of the company while the others build it.
Suggested wording: "Each founder shall vest their shares over four years, with a quarter vesting upon completion of the first year, and the remainder vesting in equal monthly instalments over the following three years. If a founder's relationship with the company ends before full vesting, the company or the remaining founders shall have the right to purchase the unvested shares at their nominal value."
The right approach is to draft this clause to fit the company's legal form, because the mechanics of implementing it differ between company types, so a specialist lawyer should assist. The common mistake is to split shares equally at once with no vesting. Example: three founders split the shares into three equal parts, and one left after eight months for another job, keeping a third of the company. When an investor arrived two years later, he refused to invest in a company a third of which was owned by someone not working in it.
Roles and decisions
The agreement sets each founder's role and responsibilities, the decisions that need unanimity and those for which a majority suffices, and what happens in a tie. The common mistake is to leave roles implicit, so founders overlap in decisions and disputes arise over who has the final say on technology or marketing.
Intellectual property contracts: owning what you build
The value of most startups lies in their intellectual property: code, design, brand and content. The first thing a serious investor checks is: does the company actually own what it built? The problem is that a large part of this property is built before incorporation, or by freelancers, or by the founders in their personal capacity, and does not pass to the company automatically.
| Who produced the work | Document required |
|---|---|
| Founders before incorporation | Assignment of intellectual property to the company |
| Employees | An intellectual property clause in the employment contract |
| Freelancers and agencies | An express assignment clause in the service contract |
| Consultants | A consulting agreement covering ownership and confidentiality |
Suggested wording in a freelancer contract: "Ownership of all intellectual property rights in the work the service provider produces in performing this contract, including source code, designs and documents, shall vest in the company upon creation and without any payment beyond the agreed fees."
The common mistake is for a founder to engage a freelance programmer through messages, pay them, and assume the code has become the company's. The rule in many cases is that the author owns their work unless otherwise agreed in writing. Example: a fintech startup discovered during an investor's due diligence that the core module of its app had been written by a freelancer who had signed no assignment. It had to renegotiate with him, and he asked for a large sum because he knew the round depended on him.
Non-disclosure agreements: when do you really need them?
A startup needs non-disclosure agreements when it shares sensitive information: with a prospective technical partner, a supplier, an employee before hiring, or a consultant. The agreement sets what counts as confidential, the duration of the obligation, and the exceptions. But it is important to know that many investors do not sign NDAs at the first pitch stage, because they see hundreds of similar ideas. The right approach is to share in the first pitch enough to persuade without sensitive technical details, and to ask for the agreement when you reach detailed review. For details on writing this agreement, see our guide to the non-disclosure agreement.
Early employee contracts
A startup's early employees often work for less than market pay in return for promises of shares or future rewards. These promises, if not written precisely, become a major source of dispute. The right approach is for each employee to have a written employment contract setting out their pay, duties and the intellectual property and confidentiality clauses, and for any promise of shares or stock options to be documented in a separate document setting out its terms precisely: the number or percentage, the vesting schedule, and what happens on departure.
The common mistake is to tell the first employee "you'll have a stake in the company" with no specifics. Example: a developer joined a startup in its first year on a verbal promise of "a good share", and three years and a successful funding round later disagreed with the founders over what "good" meant. It ended with him leaving and the company losing its longest-serving programmer. For details of employment contract clauses, see our guide to the electronic employment contract.
Care is also needed with the non-compete clause in employee contracts. This clause must be limited in time, place and type of work, or it may not be upheld. Startups sometimes overdo it out of anxiety, weakening their position instead of strengthening it.
Customer contracts and terms of service
When the company starts selling, it needs one or both of two things: general terms of service that customers accept when subscribing to the digital product, and tailored contracts for large corporate customers. Terms of service set out what the company commits to, the limits of its liability, the cancellation policy and ownership of customer data. Tailored contracts are negotiated with each large customer and set the guaranteed service level, prices and confidentiality.
| Clause | Why it matters to a startup |
|---|---|
| Limits of liability | Protects it from claims beyond its financial capacity |
| Service level | Defines precisely what it commits to without exaggeration |
| Data ownership | Clarifies that the customer's data is theirs and how it is processed |
| Termination | Sets what happens to data and payments on cancellation |
| Personal data protection | Complies with the Personal Data Protection Law No. 151 of 2020 |
The common mistake is for a startup to copy terms of service from a big global company, with another country's laws and courts, so they are unsuited to its customers and may not protect it. Or to promise the first large customer a service level it cannot achieve, because it is eager to close the deal.
Investor contracts
Investment rounds come with complex documents: the term sheet, the investment agreement, the shareholders' agreement, and sometimes convertible financing instruments. These documents set rights that may shape the company's future for years: the right to veto certain decisions, liquidation preference, anti-dilution protection and board seats.
The right approach is for the founders to engage a lawyer specialised in venture investment at this stage in particular, and not to settle for reading the term sheet themselves. Terms such as liquidation preference may mean the founders get nothing in a modest sale of the company. The common mistake is for founders to focus on valuation alone and neglect the terms that determine control and actual returns.
Supplier and partner contracts
A startup depends on key suppliers: cloud hosting, payment services, messaging services and marketing agencies. Many are accepted on their standard terms without negotiation, which is usually fine for the large services. But contracts with small partners, such as a development agency or a distribution partner, need reading and negotiation. Most important is that it be clear who owns what is produced in these partnerships, and who sees customer data.
How do you sign these contracts quickly and at no cost?
The founders, employees and freelancers of a startup are often spread across cities and countries, and the investor may be abroad. Printing contracts, signing them and shipping them does not suit a startup's speed. Electronic signing is the natural way, and Egypt's Electronic Signature Law No. 15 of 2004 gives it evidentiary weight once its conditions are met.
In Wthaiq a startup can prepare its contracts in the contract editor, send them for signing with a verification code by email or WhatsApp, set the signing order when there are several founders, and request identity verification of the signer for sensitive contracts. For every contract an audit log and a trusted timestamp are kept proving the date of signing, which is especially important for intellectual property assignments, because the date of the assignment may be asked about during an investor's due diligence.
The data room: prepare for the investor's due diligence before they ask
When an investor nears an investment decision, they ask for a detailed review known as due diligence, in which their lawyers go through all the company's contracts: the founders' agreement, intellectual property assignments, employee contracts, large customer contracts, and any existing obligations or disputes. A company that gathers these documents for the first time when the investor asks spends weeks searching, and discovers gaps needing urgent repair, and funding may be delayed or its valuation changed because of them.
The right approach is to build the "data room" gradually from incorporation: an organised folder holding every signed contract in its category, with its signing date and parties. Then when the investor comes, the documents are ready in a day. The common mistake is for some contracts to be signed on paper and kept in one founder's drawer, some in another founder's email, and some never signed at all though everyone thinks they were.
Example: an e-commerce startup was asked in its first round's due diligence to prove that everyone who had worked on the platform had assigned their intellectual property. It found assignments for most employees, but nothing for three freelancers who worked in the first year, and found one assignment with no date. It needed a month to track down the freelancers and have new assignments signed. Had the contracts been signed electronically with recorded dates and kept in one place, all it would have taken was exporting a list.
The timeline: which contract and when?
| Stage | Contracts required |
|---|---|
| Before incorporation | Founders' agreement, and founders' assignment of intellectual property |
| Building the product | Freelancer contracts with express assignment, and confidentiality agreements |
| First employee | Employment contract, and a shares or options document if promised |
| First customer | Terms of service and privacy policy, and the large customer contract |
| First investment | Term sheet, investment agreement and shareholders' agreement |
This table does not mean every contract waits for its stage; many companies need some of them earlier than others, depending on the nature of their business.
Checklist for a startup
- Have the founders signed an agreement setting shares and roles?
- Does the share allocation include vesting?
- Have the founders assigned their pre-incorporation intellectual property to the company?
- Has each freelancer signed an express assignment of ownership?
- Does every employee have a written employment contract?
- Have share promises been documented in a document with defined terms?
- Is the non-compete clause limited in time, place and type?
- Are the terms of service suited to Egyptian law and the company's customers?
- Are all contracts kept in one place with a recorded signing date?
Frequently asked questions
Do we need a founders' agreement if we are close friends?
Yes, perhaps more than others. A written agreement protects the friendship from the disputes that arise when circumstances change.
When should we write the intellectual property contracts?
From day one. Every line of code or design produced without a written assignment may need costly negotiation later.
Do investors sign non-disclosure agreements?
Many do not sign them at the first pitch stage, so show enough to persuade without sensitive technical secrets.
Is signing a founders' agreement electronically valid?
Yes, it can be proven by electronic signature, subject to any official procedures required for incorporating the company or amending its articles.
Do we need a lawyer for all of these contracts?
A lawyer is recommended for the founders' agreement and investment contracts in particular. For recurring contracts, the template is reviewed once and then used.
Conclusion
Contracts are not a luxury a startup postpones until it grows; they are the foundation on which its value is built. A clear founders' agreement, complete intellectual property assignments and well-defined employee contracts make the company ready for investment and growth. A contract that costs an hour today may save months of negotiation and dispute tomorrow, and may be the difference between an investment round that closes on time and one that stalls. Start writing and signing your essential contracts today through Wthaiq.
This article is for general awareness and does not constitute legal advice.