Don’t Build a Startup on Verbal Promises
Startups run on optimism (and lots of it). But verbal agreements, no matter how well-intentioned, no matter how good of a friend the agreement is with, won’t hold when things go wrong. And they will at some point go wrong (most likely). We’ve seen it firsthand—brilliant founders whose companies collapsed because they never signed formal startup legal agreements.
We recently worked with a founder who started building a product in high school with one of his best friends for a class project—it was an idea they both believed in. A few years later, he discovered the project had launched. Publicly. Without him.
He looked everywhere for the documentation they had drafted back in high school. Old emails, shared folders, screenshots. But he couldn’t find anything. No formal agreement, no signed equity paperwork, nothing he could take to court or even use to negotiate. His contribution had quietly disappeared. So had his equity. Gone with the wind. Poof, the magic dragon, bye-bye. Sayonara.
That’s why we say: if you’re doing real work, for a project that you want to be a part of for the long-term, sign real documents. Sign them early. Sign them when everyone is happy and in agreement. Trust us, it’s better than the alternative.
Startup Legal Agreements Are Not Optional
Startup legal agreements protect your vision, your ownership, and your ability to move forward. These include founder’s agreements, IP assignments, operating agreements, and contracts with anyone contributing meaningful work.
When you put things in writing, you eliminate ambiguity. You reduce risk. And you ensure the business can continue regardless of future disagreements. One question we get all the time for contracts we review is “Is all of this really necessary?”. The short answer is “Yes you dummies”. But the longer answer is that the goal of contracts is to determine what will happen for future hypothetical occurrences, so even if a provision or a document seems unnecessary in the moment, it could very well decide the future of your business. And it is SO MUCH EASIER to get things in writing when everything is hunky-dory versus paying lawyers thousands of dollars post-facto trying to remedy a cluster-f***ed situation.
Without these documents, even well-intentioned teams can spiral into mistrust, legal disputes, and total breakdown. People change. Memories fade. The only thing that lasts is what’s written and signed. Just to reiterate: Once money get’s involved, all bets are off the table. It’s a pessimistic view, but people are inherently selfish and will do whatever serves their best interests. Financial selfishness often manifests in conditional generosity, prioritization of personal gain, and using money as a tool for power and control. The article highlights how transactional generosity—where giving is tied to personal benefit—reflects a broader cultural shift toward selfishness.
When to Sign and What to Include
Legal agreements should be signed before meaningful work begins. This includes anyone writing code, designing your brand, or advising with the intent of equity.
A founder’s agreement outlines roles, contributions, equity splits, and vesting schedules. Although it’s not technically legally binding, it defines and guides the key provisions that will be included in the operating agreement. An operating agreement handles internal decisions, profit distributions, and dispute resolutions. If someone is working on IP—get it assigned to the company in writing. No good VC will invest in a company if its founders or contractors haven’t signed IP assignment agreements… too much potential for IP disputes in the future. Without an IP assignment agreement, a founder could take the same idea and replicate it in a competing business, or sell it to a competitor. For more on the topic of protecting your intellectual property, See article: Safeguarding Your Ideas: Essentials for Protecting Your Intellectual Property (IP).
Most importantly, confirm all equity holders and update your cap table regularly. Everyone should know their standing. And no one should be surprised later by what they did—or didn’t—own.
How Launch A Biz Can Help
We help startups avoid the legal messes we’ve seen too often. At Launch A Biz, we don’t just form your company—we make sure your documents match your reality.
That includes drafting and explaining operating and founder agreements. We help confirm your equity split and document cap table ownership. We can review or draft contracts for contributors, freelancers, and early team members. When it comes time to raise money, having all of your ducks in a row, chickens in the hen, or horses in the stable, in terms of legal documents is vital to ensuring the VC’s or investor’s diligence is done as easily as possible. We provide a suite of documents that any investor will need: operating agreement, certificate of incorporation, IP assignment agreements, EIN, etc.
Founders don’t need to be legal experts—but they do need expert support. That’s where we come in.
Helpful Resources
- YC Startup Library – Legal: Practical legal advice from founders and investors
- Startup School Legal Resources: Templates and explanations on equity, formation, and team agreements
- Launch A Biz Legal Services: Shameless plug… From legal formation to custom founder agreements, we provide legal, design, and web all under one roof
Final Thoughts
Startup legal agreements aren’t just paperwork—they’re protection. Paperwork is boring. Legal is boring. But boring is the difference between having equity in a multi-million dollar company and a lifetime of envy wishing you had better protected your assets. Protection for your time, your vision, your contribution. We’ve seen what happens when founders delay signing. It’s not just costly. It’s personal.
If you’re building something worth believing in, it’s worth protecting. Make it official. And if you’re unsure where to start, Launch A Biz can help you do it right.
Legal Must-Haves for First-Time Founders
Startup Legal Checklist
Before you launch or build your MVP, make sure you’ve handled the following:
- ✅ Founder’s Agreement: Defines roles, equity splits, vesting, and responsibilities
- ✅ IP Assignment Agreements: Transfers any code, design, or content to the business
- ✅ Operating Agreement: Governs internal decisions, profit sharing, and dispute processes
- ✅ Cap Table Confirmation: All equity holders listed and confirmed by email or doc
- ✅ Non-Compete / NDA (if applicable): Especially for technical co-founders or contractors
- ✅ Entity Formation: LLC, C-Corp, or other registered with the appropriate documents
- ✅ Vesting Schedule: Typically 4 years with a 1-year cliff to prevent early exits from hurting the company
Legal Disclaimer:
This content is for informational purposes only and does not constitute legal, financial, or professional advice. No attorney-client relationship is created by reading this material or contacting us. You should consult a qualified attorney or appropriate professional for advice specific to your situation.