Who can bind the company? A practical approach to signing authority
As more people begin making decisions for the business, founders need a clear answer to a simple question: who can commit the company, and how far does that authority go?
As more people begin making decisions for the business, founders need a clear answer to a simple question: who can commit the company, and how far does that authority go?
The legal setup that works for two founders and a few early customers will not always work once the company is hiring, raising money and signing more serious contracts.
The legal form should follow the business being built. Ownership, fundraising plans, regulation and where the company will operate all matter more than choosing the structure another startup happened to use.
A founder agreement should do more than record percentages. It should make clear how the founders will make difficult decisions together before those decisions become personal.
Dilution becomes much easier to understand once founders stop focusing only on percentages and look at what new shares are being added to the company and why.
A commercial contract can quietly give away more control over your startup's technology, content or data than the founders intended. The important IP terms are often buried in ordinary agreements.
As the company grows, recurring legal and compliance work should stop living in founders' memories. A simple annual calendar can prevent routine obligations from becoming last minute problems.
Investor diligence becomes difficult when the story founders tell about the business does not match the documents underneath it. Most problems start with ordinary company matters that were never properly closed out.
There is a point where an idea shared between founders becomes a real company with customers, money, code and people. That transition is where a few early legal decisions begin to matter.
A personal guarantee can make a founder responsible for a company obligation even though the company is a separate legal entity. It should never be signed as if it were routine wording.
A payment provider, cloud service or app platform can become critical to your startup long after someone clicked 'accept' on its standard terms. Founders should know what happens if that relationship changes.
Website terms should describe how your product actually works. Copying another company's terms can leave important parts of your own customer relationship completely uncovered.
Founder exit terms are easiest to agree while everyone still expects to stay. They are there to avoid improvising about shares and control when one person's role later changes.
Pre money and post money SAFEs can look similar on the page but affect founder ownership differently. The difference becomes clearer when you ask whose dilution is being counted before the next round.
Both SAFEs and convertible notes can postpone the share price until a later round. The practical difference is that a note begins as debt, while a SAFE usually does not create the same repayment obligation.
Using AI tools in product development does not remove the need to know who owns the code your company relies on. Founders should understand what developers put into those tools and what comes back out.
A cap table should tell the ownership story of the company without founders having to explain around it. Keeping it clean early makes every later share issue and funding round easier.
A foreign holding company is not automatically the right answer for a startup with global ambitions. The incorporation decision should follow where the business operates, raises money and needs to comply.
A data room should not be a folder created in panic when an investor asks for documents. It should bring together the records that already explain the company clearly.
Data protection becomes real the moment your startup starts collecting information about people. The first step is understanding what you collect, why you need it and who else receives it.
Founder vesting keeps ownership connected to the time founders actually spend building the company. It matters most when someone leaves much earlier than everyone expected.
An option pool should be built from the people the startup genuinely expects to hire. Starting with a standard percentage can leave founders giving away more equity than the hiring plan requires.
A term sheet is not only about valuation. Founders should read it as a map of the relationship they are about to have with the investor after the money arrives.
If the startup depends on code, design or content created by founders, employees or contractors, the company should be able to show clearly that those rights belong to the business.
A company name can be available for registration and still be a poor choice for the brand. Founders should check the name from a company, trademark and practical market perspective before building around it.
Advisor equity should reflect a real contribution over time, not a generous percentage agreed after one good conversation. Clear scope and vesting protect both the company and the adviser.
A valuation cap on a SAFE does not set today's value of the company. It sets a ceiling on the price used when the investor's money later converts into shares.
An NDA is useful when a real confidential conversation needs protection. It is less useful when founders use it as a substitute for deciding what information should actually be shared.
Calling someone a contractor does not make them one. Startups should look at how the person actually works, because misclassification can create tax, benefits and employment issues later.
A share option is not the same as owning shares today. It gives an employee the right to acquire shares later if the conditions in the option plan are met.