Contracts and Business Agreements
Top Six Legal Contracts for New Service Businesses
As a new business owner, you'll want to quickly get these contracts in place. You can use a law firm to prepare your contracts or you can find many legal contracts for free on the Internet.
As most folks know, starting a services business requires some legal paperwork, like drafting a Shareholders' Agreement.
Once you've got those business formation legal docs in place, you might hope that your won't have any other start-up legal costs or needs.
Sorry, you're not done yet.
In our opinion, every new service business needs these six business contracts in place as soon as possible.
1. Service Contract
This is the contract your customer will sign to hire your firm. A good practice is to have a Master Service Agreement (MSA) and to have appendices that define the specifics for a Scope of Work (SoW). After selling the initial piece of business, you can just add additional appendices when you sell more work to the customer later.
2 Independent Contractor Agreement
Eventually, you may want to sell your business. At that time, the buyer will conduct due diligence and will want to know that every independent contractor signed your paperwork. If not, there will be concern that the contract may come back and claim some of your intellectual property or insist that they should have been classified as an employee. These and other risks create liability even if you are not selling your company, so always, always have independent contractors and consultants sign an employee agreement.
3. Non Disclosure Agreement
A Non-Disclosure Agreement (or "NDA") ensures that people don't disclose confidential information or trade secrets when they shouldn't. Prospective customers may ask you to sign an NDA, and it's best to quickly offer your own version, so you don't have to be concerned that any of the terms are to your liking. These NDAs are often mutual in nature. You also will want to have your employees sign some form of non-disclosure agreement.
4. Employee Offer Letter
You might not think that an offer letter you give to somebody you want to hire is a legal document, but it most certainly is. An offer letter documents the terms of employment and you don't want there to be any ambiguity in it, given that it could potentially end up in front of a judge one day if things sour between you and your new hire.
Employment agreements are usually reserved for senior employees, where the relationship is more complex. For example, you may terminate the employee for good cause or without cause. Similarly, the employee may quit with good reason or without good reason. All four of these scenarios are usually defined in a senior hire employment agreement, with an explanation as to what will happen in each case.
For junior employees, you could also have an employment agreement, but it might cover simpler topics, such as requiring them to return a laptop or phone that has been issued to them should they ever leave the company.
6. Employee Handbook
Many start-up companies go for years without creating an employee handbook, and that's a big mistake. Documenting the company's policies on things like sexual harassment, maternity/paternity leave, time off and other important topics can prevent downstream legal hassles, so a best practice is to have an employee handbook in place as soon as you start adding employees. You should also have your employees sign something that indicates that they have read the employee handbook, understand it and acknowledge all of the company's policies.
Other Legal Documents Needed by Small Businesses
It would be great, if you never needed any other legal documents beyond the six essential legal contracts for services businesses that we've discussed above.
But there are plenty more. For example, if you've got a business partner, you might want to create a Buy-Sell Agreement.
Many additional legal needs will arise from time to time. Lawyers are expensive, so use templated legal contracts that you can find for free online. Still, it's best to have a business attorney review your contracts, as free legal contract templates can get out of date, the laws vary from state to state, and the nuances of what you need may not always align with what free business contract examples or templates provide.
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Are we missing any important legal contracts for a new business? Have questions on these contracts? All comments, questions and tips are welcome.