Why founders misunderstand contract formation — and why it matters earlier than you think

Most founders assume contracts become legally binding when someone signs a PDF.

In practice, many startup obligations begin much earlier.

Emails. Calls. Slack messages. Kick-off meetings. Starting development. Sending deliverables. Accepting changes without formally documenting them.

One of the most common early-stage founder phrases is:

“Let’s just start now and document it later.”

That sentence has created a surprising number of legal and commercial problems.

For startups, contract formation is not just a legal technicality. It directly affects:

• liability
• payment disputes
• ownership of deliverables
• scope creep
• investor due diligence
• and ultimately valuation

Understanding when agreements become binding is one of the simplest ways to avoid preventable founder mistakes.

The biggest misconception founders still have

Many founders believe:

“Nothing is binding until the final agreement is signed.”

That is not how Finnish contract law works.

Under the Finnish Contracts Act (Oikeustoimilaki), agreements generally arise through:

• offer
• acceptance
• and mutual intent

A signed formal contract is often only evidence of that agreement.

It is not always the thing that creates the obligation itself.

This matters because startup teams move fast.

Commercial discussions often happen through:

• email threads
• Teams or Slack messages
• calls
• workshops
• pilots
• shared project plans
• informal approvals

Over time, those interactions may create legally relevant expectations and obligations even before anyone signs a long-form agreement.

Offer + acceptance sounds simple. In practice, it rarely is.

In theory, contract formation is straightforward.

One party makes an offer. The other party accepts it. An agreement is formed.

In startup life, however, things are rarely that clean.

A typical situation may look like this:

• customer asks for a proposal
• startup sends pricing and scope by email
• customer responds “looks good, let’s start”
• founders begin work immediately
• scope changes happen informally
• nobody signs the formal agreement for weeks

At that point, the legal question is no longer:

“Did we sign?”

The question becomes:

“What did both sides objectively understand had been agreed?”

That is a much more uncomfortable discussion.

Yes, email can bind you

Founders are often surprised by this.

But commercially speaking, email negotiations can absolutely create binding obligations.

Not every email exchange becomes a contract.

However, if the communication clearly demonstrates:

• agreed scope
• agreed pricing
• agreed timing
• and clear acceptance

then a binding agreement may already exist.

This is especially relevant in:

• software projects
• consulting work
• pilots
• development collaborations
• health-tech integrations
• custom implementations

The legal risk is not theoretical.

Many startup disputes begin because:

• one side believes a deal already existed
• the other believes negotiations were still ongoing

That gap creates problems around:

• payment
• deliverables
• delays
• ownership
• and liability.

Conduct can also create obligations

Another common founder misunderstanding is:

“We never explicitly agreed to that.”

The problem is that behaviour itself can sometimes signal acceptance.

For example:

• starting work
• delivering milestones
• accepting deliverables
• continuing cooperation without objection
• paying invoices
• allowing use of software

may all strengthen the argument that an agreement already existed.

In practice, courts and counterparties often look at:

“What did the parties actually do?”

Not only:

“What did the final PDF say?”

For startups, this becomes especially dangerous when teams are eager to move fast and avoid “slowing things down with legal”.

The hidden startup risk: undefined scope

One of the most common practical consequences of weak contract formation is scope uncertainty.

This happens constantly in early-stage companies.

Example:

A startup agrees to build a pilot integration.

During the project:

• additional features are requested
• timelines shift
• expectations evolve
• extra support is provided informally

Nobody updates the agreement.

Months later, the parties disagree about:

• what was included
• what should be paid separately
• who owns the resulting work
• and whether delays constitute breach.

At that point, the lack of clear documentation becomes expensive.

Not because the startup acted in bad faith.

But because the structure was never properly defined.

Why “we’ll fix it later” becomes expensive

Founders often postpone legal work because:

• speed feels more important
• budgets are limited
• relationships feel positive
• the deal still feels “small”

Ironically, that is exactly when structure matters most.

Because early-stage companies usually have:

• limited bargaining power
• limited cash reserves
• concentrated operational risk
• unclear processes

A single badly structured relationship can absorb disproportionate time, money and management attention.

This is especially true in:

• pilots
• subcontracting chains
• enterprise onboarding
• co-development projects
• and regulated industries such as health-tech.

Section 36 is not your business model

Some founders vaguely assume that obviously unfair contract terms can always be fixed later.

Under Section 36 of the Finnish Contracts Act, unreasonable contractual terms may indeed be adjusted or disregarded in certain situations.

But founders should be extremely careful about relying on that.

In commercial B2B relationships:

• courts expect companies to understand what they sign
• negotiated risk allocation matters
• and professional counterparties are given broad contractual freedom

In other words:

Section 36 is a safety valve.

It is not a negotiation strategy.

If your startup accepts:

• unlimited liability
• broad indemnities
• unclear IP transfer language
• or undefined obligations

it is dangerous to assume those terms will later disappear simply because they turned out to be commercially painful.

What investors actually see during due diligence

Founders sometimes view contract hygiene as “admin work”.

Investors do not.

During due diligence, investors typically examine:

• customer agreements
• founder agreements
• IP ownership chain
• contractor agreements
• data processing arrangements
• and material commercial obligations.

The concern is not merely legal compliance.

The concern is scalability.

Questions investors silently ask include:

• Is liability controlled?
• Is the IP chain clean?
• Are obligations clearly documented?
• Can this company scale without hidden contractual chaos?

This is why weak early-stage contract practices often become valuation discussions later.

Or worse:

• delay financing rounds
• reduce investor confidence
• or create expensive clean-up exercises before investment.

Practical founder checklist

Before starting any meaningful commercial relationship, founders should pause and ask:

1. What exactly are we agreeing to?

Define:

• scope
• deliverables
• timelines
• responsibilities
• payment structure

2. What happens if things go wrong?

Clarify:

• liability caps
• termination rights
• delays
• service expectations
• dispute escalation

3. Who owns the IP?

This is critical.

Never assume ownership automatically transfers.

If software, documentation, models or technical work are created:

• ownership
• licenses
• and usage rights

must be addressed explicitly.

4. Are we already beyond NDA territory?

An NDA protects confidentiality.

It does not automatically create:

• license rights
• pilot terms
• production usage rights
• or operational responsibilities.

A useful practical rule is:

The moment you give access, you usually need more than an NDA.

5. Would an investor be comfortable reviewing this later?

This is one of the best founder filters.

If the answer is:

“We’ll probably need to explain this…”

then the structure likely needs improvement.

Final thought

Most startup legal problems do not begin with dramatic disputes.

They begin with:

• assumptions
• speed
• optimism
• and informal agreements that quietly become operational reality.

Good founders do not need to become lawyers.

But strong founder teams learn to recognise:

• when obligations begin
• where risk actually sits
• and which legal decisions quietly shape future business outcomes.

Because legal structure is rarely just paperwork.

It is usually leverage.

Senior Associate Marko Moilanen,

email: [email protected]

tel: +358 40 517 0002