SaaS legal basics for solo founders
Most of what founders worry about legally does not matter yet. Two things do, and both take an afternoon.
The short version
- Terms and a privacy policy come before your first paying customer. Not before launch: before payment.
- You can start as a sole trader. Incorporate when there is something to protect.
- GDPR applies if you have EU users, wherever you are. It is less onerous than its reputation.
- Use a payment provider that handles sales tax. This is the one to not do yourself.
- Generated documents are fine to start; get them reviewed when revenue justifies it.
A note before anything else: this is general information from a builder's perspective, not legal advice, and none of it is specific to your situation or your country. It is a map of what usually matters so you can ask better questions, and where the stakes are real, the answer below is always to ask someone qualified.
What do you genuinely need before the first customer?
Two documents and one decision about payments. Terms of service, a privacy policy, and a payment provider that handles sales tax on your behalf. Everything else that gets discussed in founder forums can wait, and waiting costs you nothing.
| Thing | When | Why |
|---|---|---|
| Terms of service | Before taking payment | Defines refunds, liability, acceptable use |
| Privacy policy | Before collecting any data | Legally required in most places; app stores demand one |
| Payment provider handling tax | Before the first sale | Sales tax across jurisdictions is genuinely hard |
| A business entity | When there is real revenue or risk | Liability separation, and it is easier later than people claim |
| Trademark | When the name is worth defending | Rarely urgent for a first product |
| A contract for freelancers | Before hiring anyone | IP ownership, mainly |
The order that matters: a privacy policy is needed the moment you collect an email address, which is usually well before you have a product. Terms are needed the moment money changes hands.
What goes in the terms of service?
The commercial reality of your product, written down: what the subscription includes, how billing and cancellation work, your refund policy, what users may not do with it, and a limitation of liability. The last one is the clause the document mostly exists for.
- Billing terms. When you charge, what happens on failure, whether it renews automatically. Auto-renewal disclosure is legally required in a number of jurisdictions.
- Refund policy. Decide it either way, then state it and honour it. Vague is worse than strict.
- Acceptable use. What gets an account terminated. Short and plain.
- Limitation of liability. Caps your exposure if the product fails. This is the core of it.
- Data and IP. Users keep their data; you keep the software. Say so explicitly.
- Termination. How either side ends it, and what happens to their data afterwards.
The clause worth thinking about rather than copying is data export on cancellation. Saying clearly that users can take their data with them is a trust signal on your pricing page and it removes an objection during the sale; it is one of the rare legal decisions that is also a marketing one.
Does GDPR apply to you?
If any of your users are in the EU or UK, yes, regardless of where you are based. But for a small SaaS it is mostly a set of practices you would want anyway: collect only what you need, say what you collect, let people see and delete it, and use processors who are themselves compliant.
- Have a lawful basis for the data you hold. For a paying customer that is performing the contract; for marketing email it is consent.
- Do not pre-tick the marketing box. Consent has to be an actual choice, taken separately from signing up.
- Let people export and delete. A working delete-account button covers most of this, and it is a day of work.
- Know your processors. Your host, payment provider, email service and analytics all touch user data; list them in the privacy policy.
- Cookie consent, only if you need it. Required for tracking cookies, not for a session cookie that keeps someone logged in.
The easy version: choose privacy-first analytics that does not set tracking cookies, and the entire consent-banner problem disappears along with a piece of UI everyone hates. This is a genuinely free win at this size.
US state privacy laws (California's in particular) have broadly similar shapes, so a product built to the practices above is usually close to compliant with both. The details differ and are worth checking once you have revenue.
Do you need to form a company?
Not on day one in most places. You can trade as an individual, take payments and have customers. Incorporate when there is something worth separating from your personal assets: real revenue, real users, or a product whose failure could cost someone money.
Weighing it honestly, because founders spend months on this decision and it is rarely the bottleneck:
| Sole trader | Limited company / LLC | |
|---|---|---|
| Setup | None or minimal | A fee and some paperwork |
| Ongoing cost | Almost none | Filings, and usually an accountant |
| Liability | Personal | Separated, mostly |
| Looks credible to B2B buyers | Less so | Yes, sometimes required |
| Sensible when | Pre-revenue, or a side project | Real revenue, or business customers |
The row that decides it for many people is the fourth. Selling to companies means procurement, invoices and occasionally a security questionnaire, and some buyers simply will not contract with an individual. If your first customers are businesses, that moves incorporation up the list considerably.
What about sales tax and VAT?
This is the one genuinely hard problem, and the answer is to not solve it yourself. Digital services are taxed where the buyer is, which in principle means dozens of jurisdictions with different rates, thresholds and filing schedules. Use a merchant of record and it becomes their obligation instead of yours.
The distinction is worth knowing precisely, because it is the single highest-impact choice on this page:
- A payment processor moves money for you. You remain the seller, and the tax obligation is yours.
- A merchant of record is the legal seller. They handle the tax registration, collection and remittance, take a somewhat larger cut, and the compliance problem is theirs.
For a solo founder selling internationally, the larger cut is close to always worth it. The alternative is registering for VAT in the EU, monitoring economic nexus thresholds across US states, and filing returns, which is a part-time job that produces no product.
Where do the documents come from?
Start with a reputable generator or a template from a company at your stage, and have them reviewed by a lawyer once you have revenue worth protecting. Copying a competitor's terms is the one route to avoid: it is their document, describing their product, and it is copyrighted.
- Generate a first version. Terms and privacy policy from a reputable generator, adjusted to describe what you actually do.
- Read every line. A generated document that claims you do things you do not is worse than none: accuracy is the whole point.
- Keep them current. New feature that collects new data means an updated privacy policy.
- Get a review when it matters. Meaningful revenue, business customers, health or financial data, or anything involving minors. That is the point to stop reading blog posts and pay someone.
And keep the whole thing in proportion. Two documents, a payment provider that handles tax, and a delete-account button covers the great majority of what a small SaaS needs to launch responsibly. The founders who get into trouble here are almost never the ones who launched with generated terms. They are the ones who took payments with no terms at all, or who collected data they never told anyone about.
Frequently asked questions
Do I need terms of service for a small SaaS?
Yes, before you take payment. They define your refund policy, billing terms and limitation of liability, the clause the document mainly exists for. This is general information, not legal advice.
Does GDPR apply if I am not in Europe?
If you have users in the EU or UK, yes. In practice it means collecting only what you need, disclosing it, and letting people export and delete their data, which is good practice regardless.
Do I need a company before launching?
Usually not. Many founders start as sole traders and incorporate once there is real revenue or business customers who require it. The main reasons to do it earlier are liability and B2B credibility.
How do I handle sales tax and VAT?
Use a merchant of record, which becomes the legal seller and takes on the tax obligation for a slightly larger cut. Handling multi-jurisdiction digital sales tax yourself is a part-time job.
Can I use a terms of service generator?
To start, yes, provided you read it and it accurately describes your product. Get a proper review once you have revenue, business customers, or sensitive data. Never copy a competitor's.
The system behind this, written down
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