Essential Contracts for Startups: A Step-by-Step Guide for Australian Founders
Introduction
Starting a business in Australia is exciting and full of potential. From scaling quickly to attracting investors and top talent, startups face numerous opportunities. But along with growth comes legal responsibility. One of the most common mistakes founders make is underestimating the importance of contracts. Getting early guidance from a lawyer for small businesses can help founders avoid common legal pitfalls and ensure their contracts are properly structured from the start.
Well-drafted contracts do more than just protect your startup—they clarify roles and responsibilities, set expectations, and prevent disputes that can derail your business. They also demonstrate professionalism to investors, partners, and employees.
This guide provides Australian founders with a step-by-step approach to the essential contracts every startup needs. Each step includes practical tips, examples, and considerations tailored to the Australian legal context.
Step 1: Founders’ Agreement
Your founders’ agreement is the blueprint for how your startup operates and how founders interact. It sets the tone for equity distribution, responsibilities, and dispute resolution.
Key elements to include:
- Equity ownership and allocation
- Roles and responsibilities of each founder
- Decision-making processes and voting rights
- Vesting schedules for founders’ equity (commonly 3–4 years with a 12-month cliff)
- Exit procedures, buyout clauses, and how to handle a founder leaving
Tip: Addressing these matters early prevents conflicts over ownership, control, and contributions later. Even informal agreements can become binding disputes if not documented properly.
Example: If two founders contribute differently to a tech startup—one handling product development, the other fundraising—the founders’ agreement should clearly outline equity allocation and how contributions will be recognised over time.
Step 2: Shareholder Agreement
Once you involve external investors or have multiple shareholders, a shareholder agreement becomes critical. It governs rights, obligations, and expectations of shareholders beyond what is in the company constitution.
Key elements:
- Rights and obligations of shareholders
- Dividend and profit distribution mechanisms
- Transfer of shares and pre-emptive rights
- Dispute resolution clauses, including mediation or arbitration
Tip: Even if you are self-funded, consider drafting a shareholder agreement for clarity and to anticipate future investment rounds. Investors often request these agreements before committing funds.
Step 3: Employment Contracts
Hiring employees without proper contracts can expose your startup to legal risk. A comprehensive employment contract protects both your company and your staff.
Key elements:
- Job description and duties
- Salary, bonuses, and equity allocations (if applicable)
- Confidentiality and intellectual property obligations
- Termination and notice periods
- Probation period terms
Tip: Customise employment contracts for your startup. Generic templates may not cover specific risks such as IP ownership, confidentiality obligations, or startup-specific equity arrangements.
Step 4: Contractor Agreements
Startups often engage freelancers, consultants, or contractors. Without a formal agreement, you risk IP disputes, payment conflicts, or misaligned expectations.
Key elements:
- Scope of work and deliverables
- Payment terms and milestone schedules
- Confidentiality and IP ownership clauses
- Termination rights and notice requirements
Tip: Ensure contractors assign IP rights to your startup, particularly for software, branding, or inventions, to avoid future ownership disputes.
Step 5: Non-Disclosure Agreements (NDAs)
NDAs protect sensitive information when sharing ideas with investors, potential partners, or new hires.
Best practices:
- Clearly specify what information is considered confidential
- Define the duration of confidentiality obligations
- Clarify permitted use of information and exceptions
Tip: Use NDAs strategically. Overusing them, especially with investors, can slow down discussions or create friction. Consider whether disclosure without an NDA is low risk before requesting one.
Step 6: Terms & Conditions and Privacy Policy
If your startup operates online, collects user data, or offers a platform, website and app agreements are essential.
Include:
- Terms and conditions covering website/app usage, liability, and payments
- Privacy policy detailing data collection, storage, and sharing practices
- Compliance with the Privacy Act 1988 and Australian Privacy Principles (APPs)
Tip: Keep these documents accessible and written in plain language to build trust with users and avoid disputes.
Step 7: IP Assignment Agreements
Intellectual property is often the most valuable asset for a startup. Ensure all IP created by employees, contractors, or co-founders is formally assigned to the company.
Key points:
- Explicitly state ownership of IP in agreements
- Cover software, designs, trademarks, inventions, and brand assets
- Include clauses for future creations that relate to the startup’s business
Tip: Proper IP assignments prevent costly disputes if someone leaves the company or if the business is sold.
Step 8: Optional Agreements Depending on Your Business
Depending on your structure, industry, or growth stage, your startup may also require:
- Consulting agreements for advisors or mentors
- Partnership agreements for joint ventures or collaborations
- Licensing agreements for software, technology, or content
- Investment agreements for angel investors, venture capital, or seed funding
Tip: Evaluate which agreements are necessary for your specific business model to avoid overcomplication.
Step 9: Regular Review and Updates
Contracts are not “set and forget.” As your startup evolves, review and update your agreements regularly:
- Update employment contracts when roles, salaries, or equity allocations change
- Revise shareholder agreements for new funding rounds or investor changes
- Refresh NDAs and privacy policies to comply with regulatory changes
Tip: Conducting a legal review every 12–18 months ensures compliance and minimises risk.
Conclusion
Having the right contracts is crucial to protecting your business, reducing disputes, and maintaining smooth operations. Australian startups that prioritise legal documentation are better positioned to grow, attract investors, and scale confidently.
Key Takeaways:
- Tailor agreements to your startup’s unique needs
- Address equity, IP, and ownership early
- Regularly review and update agreements to reflect growth and regulatory changes
- Seek professional legal advice to ensure enforceability and compliance
Contracts aren’t just paperwork—they are tools that safeguard your vision, your team, and your company’s future.
