By Omoruyi Edoigiawerie, Esq
Launching a start-up in today’s fast-evolving digital landscape is a roller-coaster journey filled with ambition, innovation, and unforeseen challenges.
With the rise of artificial intelligence (AI), block chain technology, decentralised finance (DeFi), and an increasingly globalised economy, the legal complexities surrounding start-up contracts have expanded.
Amidst the hustle of building a business, drafting contracts is often seen as a secondary task, but this is a critical mistake.
Contracts lay the foundation for business relationships, protect rights and interests, and mitigate legal risks. Understanding the peculiarities and challenges of drafting contracts is essential for laying a solid foundation and avoiding costly pitfalls.
Recently, I had a discussion with a start-up founder who was expanding his business into multiple jurisdictions.
He expressed frustration over the difficulty of drafting fit-for-purpose cross-border contracts that adequately address different regulatory frameworks, currency fluctuations, taxation policies, and enforcement mechanisms.
This interaction reinforced the reality that in today’s globalised start-up ecosystem, contracts must be adaptable, compliant, and strategically designed to mitigate the challenges of international operations.
*Evolving nature of start-up contracts
Contractual agreements define the terms and conditions governing interactions that form the backbone of relationships within and outside a business. Given the intricate nature of a start-up’s operations in a fast-paced, AI-driven, and highly digital environment, contracts have become increasingly complex. It is therefore crucial for entrepreneurs and business professionals to be aware of the legal intricacies that revolve around contract drafting, ensuring they mitigate risks while avoiding the common mistakes that plague many start-ups.
In 2025, start-up contracts must address not only traditional legal concerns but also emerging technological and regulatory considerations. AI-generated content, the use of decentralized smart contracts, and cross-border collaborations have introduced novel challenges in contract enforcement, intellectual property ownership, and compliance with evolving regulatory landscapes.
*Understanding start-up contracts
At its core, a contract is a legally binding agreement that governs the rights, obligations, and responsibilities of the parties involved in a business relationship.
For start-ups, contracts play a pivotal role in shaping the trajectory of the business, from solidifying initial collaborations, engaging third parties, securing funding and partnerships, to protecting intellectual property and managing risks.
Unlike well-established companies with extensive legal resources, start-ups often face unique constraints when it comes to drafting and negotiating contracts.
In the start-up space, uncertainty is the name of the game. Business models evolve, partnerships shift, and market dynamics fluctuate.
With the integration of AI and automation into business operations, new contractual considerations, such as liability for AI-generated errors, algorithmic decision-making, and compliance with AI governance frameworks, must be accounted for.
Start-ups must therefore navigate these uncertainties with agility and foresight, ensuring that contracts remain flexible yet robust enough to withstand market and technological changes.
*Key categories of start-up contracts
From my experience in the start-up ecosystem, contracts in 2025 can be grouped into three broad categories:
1. Relationship Contracts: These contracts define the legal relationships between a start-up and external stakeholders. Examples include:
Founders’ Agreements/ Shareholders’ Agreements
Investment Agreements & Equity Compensation Plans
Employment & Consultancy Contracts
AI Usage and Governance Agreements (where AI is a key component of the business)
Remote Work & Cross-Border Employment Agreements (reflecting the shift to global talent pools)
2. Proprietary Rights Protection Contracts: With the increasing reliance on AI, software, and digital assets, intellectual property (IP) protection is more critical than ever. These contracts include:
Intellectual Property Assignment & Licensing Agreements
Non-Disclosure Agreements (NDAs)
Cybersecurity & Data Protection Agreements
AI Ethics & Compliance Contracts
Smart Contract Deployment & Auditing Agreements (for blockchain-based start-ups)
3. Service Contracts: These define the terms of engagement with customers, vendors, and technology providers. Examples include:
Software as a Service (SaaS) Agreements
Web & App Development Agreements
End-User License Agreements (EULAs)
AI Model Deployment & Maintenance Contracts
Cloud Computing & Data Hosting Agreements (considering the rise in cloud-native start-ups)
These categories are broad and not exhaustive. The nuances of each contract type depend on the start-up’s industry, regulatory environment, and operational structure.
*Critical considerations for drafting start-up contracts
Start-up contracts outline essential terms such as roles, responsibilities, scope of work, intellectual property ownership, payment terms, termination clauses, and dispute resolution procedures. Several considerations are particularly relevant today:
• AI and Automation: Many start-ups integrate AI into their operations. Contracts must address issues such as data ownership, liability for AI-generated content, and compliance with AI-related regulations (such as the EU AI Act and U.S. AI Bill of Rights).
• Data Privacy & Security: With stringent global data protection laws (such as the GDPR, California Consumer Privacy Act, and evolving African and Asian regulations), start-ups must ensure that contracts incorporate robust data privacy clauses.
• Flexibility & Scalability: Given the rapid evolution of business models, contracts should include mechanisms for updates and amendments to adapt to changes without excessive renegotiation.
• Smart Contracts & Blockchain: Some start-ups leverage blockchain for automated contract execution. Legal frameworks governing smart contracts remain nascent, making it crucial to align contractual terms with enforceable legal standards.
• Cross-Border Legal Challenges: With start-ups increasingly operating in multiple jurisdictions, contracts must account for international trade laws, tax regulations, and digital service compliance standards.
*Avoiding Common Pitfalls
A common mistake among start-up founders is relying on free online contract templates. While it may seem cost-effective, these generic templates often lack the specificity needed to protect the start-up’s unique interests. Contracts should be customized by a legal expert who understands the business model, ensures clarity in obligations, and includes troubleshooting clauses that pre-empt potential disputes.
Additionally, contracts should be reviewed periodically to ensure they remain relevant and enforceable. Antiquated contracts pose risks, especially in rapidly evolving industries such as fintech, healthtech, and AI-driven enterprises.
*Mitigating risk in contract drafting
Start-ups should take the following steps to mitigate risk when drafting contracts:
• Clearly Define Expectations: Ensure all parties’ objectives and responsibilities are explicitly outlined to prevent misunderstandings.
• Regular Contract Audits: As start-ups scale, contracts should be revisited and updated to align with the company’s growth trajectory and regulatory changes.
• Legal Tech Adoption: Start-ups should leverage AI-powered legal tech tools for contract analysis, risk detection, and automated compliance updates.
• Seek The Right Legal Expertise: Working with legal professionals who specialize and understand start-up law can prevent costly errors and disputes down the line.
*Conclusion
Contracts are more than just legal formalities, they are strategic tools that safeguard business interests, prevent disputes, and ensure clarity in relationships. As start-ups navigate complex legal and operational landscapes, incorporating AI, data protection, cross-border considerations, and scalable legal frameworks into contract drafting is essential for success.
