Contracts Needed to Start a Business
Some of the contracts needed to start a business are Partnership agreement, Nondisclosure agreement, Shareholder's agreement, Service agreements.3 min read
Some of the contracts needed to start a business might include:
- Partnership agreement, which is when two or more individuals work to form a partnership instead of a company.
- Nondisclosure agreement, which keeps secret aspects of your business safe by limiting how much employees can share or make public.
- Shareholder's agreement, which defines how shares will be distributed and what rights shareholders will have.
- Service agreements, which define the duties and obligations of you as an employer and of any employees you hire.
- Business plans, which help you attract investors to provide the capital that you need to get off the ground.
- LLC operating agreement, which allows you to create an LLC for benefits that partnerships or sole proprietors don't have.
- Buy/sell agreement, which is essential for keeping things running smoothly if issues arise between a business and its owners.
- Employment agreement, which is a contract you'll create for anyone you hire to work for you.
- Administrative arrangements, which can include insurance and indemnity policies for the directors of the company, as well as provisions for employees.
- Intellectual property assignment agreement, which lets you take ownership of intellectual property directly from another person.
More on Partnership Agreements
The reason you should create a partnership agreement is so you'll have a documented guide on how you and your partner will run the business. A partnership agreement outlines how you will share profits, costs, and other assets by clearly listing the responsibilities of each party. Even if you trust your partner with your life, partnership agreements eliminate troublesome disagreements before they can begin.
When creating your partnership agreement, be sure to include:
- How you will make decisions and vote on important issues.
- How you will distribute losses and profits, including any necessary financial contributions.
- How you will withdraw or dissolve in the event that one or both partners wish to leave the business. This should also outline how to divide profits after one party has left the business.
- The roles and responsibilities of each partner, including time commitments.
More on Nondisclosure Agreements
To keep your business safe, always make your employees sign a confidentiality agreement so they understand what they are and aren't allowed to share with others. Information you might want to keep secret could include things like:
- Your marketing plan.
- Your business plan.
- Code written for your website or app.
- Financial forecasts.
- Customer and client lists.
For example, when you're hiring a freelancer for a specific marketing project, you'll probably want to make this person sign a nondisclosure agreement before sharing intimate details about your company. If you don't, the freelancer could use this information to gain a competitive advantage with another company.
You have the right to sue any employee who breaks a nondisclosure agreement for damages that happened because of their actions.
More on Service Agreements
Make sure that when you craft a service agreement, it has the following information:
- The duties and job title of the employee you are hiring.
- The date the employee will start working, and if applicable, the end date.
- How much you will pay the employee, and if you will provide any benefits.
- The hours and days the employee will work, including any agreed-upon vacations or public holidays.
- The vesting schedule for shares if you plan on offering this. Shares are a good way to reward employees after they've been with your company for a set amount of time.
- A statement guaranteeing confidentiality of information and intellectual property.
Hiring a contractor or freelancer works a little differently. The above agreements will not apply to them because they are not employees. Instead, you should create a different agreement to help guide your working relationship. This agreement should include:
- How the freelancer will invoice you and how you will pay.
- Any specific items the contractor is delivering as well as the timeline for these items.
- A note indicating that the freelancer must pay his own taxes.
- A final reminder that the contractor is not an employee and does not have the same rights as one.
If you need help with the contracts needed to start a business, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.