Legal Requirements for Business Documents
The legal requirements for business documents vary depending on the type of business formation and the number of owners or members.3 min read
2. Non-Disclosure Agreement
3. Employment Agreement
4. Terms and Conditions
Top Legal Documents for Small Businesses
One of the most common legal documents corporations use is the shareholders' agreement. Regardless of the company size, this agreement is the most important a corporation uses. A properly drafted shareholders' agreement is necessary to provide details about the shareholders' relationship and to establish the obligations and rights of each individual shareholder. The document also defines profit-sharing plans, how the shareholders will make decisions for the business, and the proportion of stock shares each shareholder owns.
Without a shareholders' agreement, the corporation must rely on constitutional documents, which are drafted more narrowly and may not cover the needs of the business. These constitutional documents include the articles of association and the memorandum of association. A shareholders' agreement exists to safeguard the interests of each shareholder across various situations and circumstances. This agreement also allows for the protection of shareholders' business investments, when it includes clauses that require shareholders to sell their stock shares back to the corporation in certain situations.
Another crucial legal document for small businesses is a non-disclosure agreement. This type of agreement creates a trusting bond between those signing it. It's often used to protect information shared between shareholders or others in the company that needs to stay confidential from the public. A non-disclosure agreement is especially important if a business has a unique or innovative idea. If the business is dealing with third parties, such as distributors or contractors, or is presenting a new idea to potential investors, a non-disclosure agreement could be signed by all parties involved.
Without a non-disclosure agreement in place, a business could lose its rights to intellectual property, such as a brand name or product. If you don't have third parties or potential investors sign an agreement, they could steal your ideas or share them with others, exposing your business to competition or leaking information. This could result in the loss of opportunities for investments or success with the product or idea.
If you plan to hire employees, your business will need an employment agreement. As the company grows and expands, you'll need to implement an employment agreement for any recruits or new hires. This agreement specifies each employee's role and limits the employer's liability. Every business with employees needs an employment agreement; without one, the default provisions tend to favor employees and will be applied automatically.
As you draft employment agreements, consider what types of employees you might hire. Examples include:
Each type of employee might need a different type of agreement.
Terms and Conditions
When your business will supply services or goods, it is important to have an agreement in place that outlines the terms and conditions for these transactions. When you trade or provide services or goods, you must define the terms under which those exchanges will happen. Every company needs a detailed list of its terms and conditions, whether it is acting as the buyer or the supplier in a certain transaction.
This legal document is essential and will include how contracts will be formed, along with specifications about services and products provided. It may also outline the process for payments, returns, delivery, and cancellations. Business owners must also include provisions in their legal documents that will account for any potential insolvency, determine what laws will apply if a dispute arises, and limit liability.
The terms and conditions of a business will become the main reference point if a dispute does arise. This document will have a major impact on the business and its operation. Many of the standard terms and conditions are specific to each industry, so it's smart to obtain legal advice and draft your own customized document.
Most businesses have websites to sell their goods or services or to market themselves. A website must have terms and conditions of use. You may wonder whether any visitors to your site will actually read the terms and conditions, but they are vital for every website. Terms and conditions form an agreement between the business and the site visitors, outlining the obligations and rights of each party, and providing some simple guidelines for how visitors can use the site.
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