What are Essential Contracts for Every Small Business?

For small or start-up businesses, too often the owners do not take the time or expense to get the right contracts and agreements in place. On some level, this makes sense to me. The business owners are too busy running the company while dealing with employees and customers. At the same time, they are handling administrative tasks and focused on creating revenue. However, there are essential contracts for every small business that should not fall through the cracks. 

Why are contracts essential?

As a lawyer, the obvious answer is for legal protection. The main purpose of a contract or agreement is to formalize a legal arrangement or relationship between two, or more, parties. Under a well-written contract, the rights and responsibilities are clear for each party. Not only does the contract serve as a template for meeting these obligations, but it also provides legal recourse for when parties fail to meet or breach the contract’s terms. For the small business owner, it is a way to mitigate risks and hold others accountable. The cost to prepare a contract is certainly with the investment when things go bad. In other words, without good contracts, your business may suffer damages with no legal way to recover those damages. Also, besides serving as legal protection, good contracts get create revenue, increase productivity, force collaboration, and prevent disputes in the first place.

My Top 10 Contracts

There are so many different types of agreements and contracts. Therefore, instead of telling you about all of the options, I will focus on the 10 most essential contracts for every small business. In no particular order, consider the following:

1. Confidentiality Agreements aka NDAs. These are used to protect your proprietary information. It is important to have confidentiality agreements in place before the disclosure of any information to another party.
2. Service Contracts. For a service-related business, this contract spells out the terms and conditions under which you provide services including your responsibilities and liabilities.
3. Leases. Real estate can be one of your most expensive costs. Therefore, make sure you enter into a lease that is fair and covers your needs.
4. Stock Purchase Agreements. For a business looking for capital from investors, stock purchase agreements lay out all of the particulars – price per share, type of stock, number of shares, representations and warranties, and so on.
5. Employment Contracts. It is essential to start the employer-employee relationship with a clear understanding of the job, responsibilities pay, benefits, and related issues.
6. Operating Agreement. The defines the obligations, rights, and responsibilities of all of the business’s owners. It also provides a roadmap should any of the owners breach this agreement.
7. Purchase Orders. This contract is a business agreement that clearly defines prices, payment terms, and delivery dates when buying or selling goods.
8. Letters of Intent. Often the first contact when exploring a business relationship with another entity. Said differently, this contact, often non-binding, is a precursor to a more detailed, formal contract.
9. Web Site Terms of Use Agreement. This is a contract between the website owner and the users of the site. It also addresses the purchasing of goods or services from the site.
10. Independent Contractor Agreement. Many small businesses cannot afford or do not need full-time employees. Therefore, it is common to use independent contractors. Clearly define the relationship between the business and the independent contractor to avoid future problems.

Protect You and Your Business

Again, I encourage owners to consider these essential contracts for every small business. We can help you in several ways. First, we can create form contracts that can be tailored to a specific situation. Likewise, we can draft a one-off contract for a particular purpose. Or we can negotiate contracts on your behalf. Lastly, we can enforce your contracts if another party is in breach or defend you if you are accused of the same. Please call us if you have any questions or need help.

Whether you work with us or not, the importance of having good contracts cannot be underestimated.