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I have an idea for a start up but would like to get a POC solution developed for feedback purposes before I spend time and money on the full product development.

Since I cannot develop the POC myself I will need to contract someone and was thinking that we should sign a non-disclosure, non-compete and contract agreements. However at this time I do not have a registered company.

Can I have the legal documents signed between two individuals (myself and the contractor). Will this documentation suffice when I eventually have a company?

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4 Answers

I'm probably not the best person to answer this, since I don't have formal legal training, but here is an educated guess.

Since you haven't registered your company yet as an LLC, LLP, S-corp, C-corp, partnership, etc, then it may be formally considered a sole proprietorship. This means you are personally liable should you owe any debt, among other things. It should also mean any contracts you write should be binding between you and the contractor.

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Legally you can sign documents. If there are disputes, you are personally liable. So for example if they don't complete the job and you refuse to pay and they take you to court and win, they can access your personal finances as part of the judgement.

Then again, your liability is limited by the amount of the contract, which may be small enough that you don't care about this (unlikely) event. You can mitigate this further by just making sure the SOW on the contract is very short, e.g. in 2-week iterations.

Once you decide to create a company, you'll want to re-sign those documents under the new company.

It's generally best to do this (create the company) in the first place; a lawyer would tell you that.

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Careful: liability isn't limited to the amount of the contract in most jurisdictions. A person hiring the services of others on a purely contract basis may be unlikely to incur additional liabilities, but even then its possible. – Francis Davey Jun 21 '10 at 19:43
If there is fraud then I am pretty sure that additional damages can be awarded - obviously depends on the jurisdiction as well. – Jeff Epstein Jun 21 '10 at 20:21
Yes you guys are correct. So I should amend to say that one of the things to put in the contract is a clause that specifically limits your potential liability to the amount in the contract -- that's fairly standard. I agree that even so things like fraud can negate it, but it's something to try. – Jason Jun 22 '10 at 16:56

It depends what the governing law of the contract(s) is/are. In England and Wales (where I work), any contracts you, as an individual stay with you. When you start a company ( it is legally a separate person. It will not be a party to any contracts that were signed before it was created.

So in particular, an NDA and non-compete agreement you sign, won't be something a future company you create can enforce against others.

I suspect this is similar in other common law jurisdictions (such as the United States), but you should check with a local lawyer. always say where you are operating when asking a legal question, otherwise any responses you get won't be much use.

The above isn't the end of the story - a well drafted contract ought to be able to provide for the creation of a company in the future and the transfer of rights and obligations to it. If you are talking to a lawyer you should explain carefully that is what you want to achieve.

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Generally speaking any two adults can create a binding contract so long as it is for a lawful purpose.

If you choose to sign a contract with a contractor before you incorporate, you should mention that you are signing on behalf of an "entity to be incorporated" and then promptly amend the contract you incorporate.

Truthfully, the best advice is obviously to consult with an experienced corporate (or startup) attorney in your jurisdiction.

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Right - in the UK at least that sort of thing hasn't worked (because you can't contract on behalf of something that doesn't exist yet). Things may be different elsewhere. – Francis Davey Jun 24 '10 at 14:26

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