Most business owners are not fond of paperwork. However, this doesn’t change the fact that having proper contracts, organized and managed carefully, is one of the most important parts of running a business. New businesses and start-ups are subject to lawsuits or prone to others finding loopholes in their policies or business operations because of their negligence in managing proper contracts.
Let’s take a look at some of the most important business contracts start-ups should know about.
Employment Letter
At some point in time, every business hires employees as it grows. When it’s time for you to hire an employee, make sure your business offers them an employment letter or an offer letter.
The employment letter states everything included in the contract you will offer to a new employee. The document is signed by the employee who agrees to follow your business rules, accept your offer, and show their intent to work. The document is proof of your hiring and your professional relationship.
Employment letters help businesses protect themselves from lawsuits if they haven’t broken the contract and help avoid misunderstandings with employees. A typical employment letter includes these things:
- Money offered along with other perks the employee is entitled to at work
- Work responsibilities and the exact job title
- The employment can be terminated immediately in case the employee breaches the code of conduct or any other company policy.
- The client has signed a confidentiality agreement
- Everything agreed in the letter can only be changed or updated in another writing in the future
- Any disputes between the employee and the employer shall be managed through confidential arbitration, except for salary reimbursement issues.
Confidentiality or Non-Disclosure Agreement (NDA)
When a business hires an employee, they get access to information that no outsider has or is allowed to have. For instance, a finance employee knows about the company finances, new deals that are about to take place, budgets, and more. A product development employee knows what innovation a business will make, the strategies they’ll use in a product, etc. All of these things have to be kept confidential to ensure the business succeeds. Trusting your employees is one thing, but getting them to sign a non-disclosure agreement (NDA) is necessary for every business.
Firstly, this contract serves as legal protection for the company. If any detail regarding the company gets leaked, and the employer can find the person who leaked it, they can proceed with termination without being sued for it (wrongful termination). Alternatively, they can file a lawsuit against the employee themselves. Moreover, this NDA also legally states that every product, idea, and innovation done by any employee under contract with the business solely belongs to the business.
The NDA also keeps the employees from using your company’s information and starting another business or sharing it with another company after their employment with your business ends. Moreover, even if the information has been shared or leaked, you can get compensated for the leak and get an injunction for the other company to immediately stop using or putting out that information.
This is crucial for start-ups as new businesses often seek investments from seasoned business owners, investors, and venture capitalists who may require them to maintain proper paperwork, including the NDA.
Service Contract
Any start-up or business providing professional services to people should have a good service contract. The service agreement specifies the service you’re liable to provide to the other person or company, the amount you’ll receive as compensation for that service, your responsibilities, exemptions, and every other important thing, like unforeseen circumstances.
Service contracts allow you to avoid misunderstandings with the client and protect you from lawsuits.
Sales Contract
A business that sells products needs to have a good sales contract. A good sales contract has all the details regarding a sale, such as the product sold, the price it was sold on, any discounts, tax deductions, warranties, disclaimers, and more.
A sales contract is a substitute for a service contract. If a company provides services and sells products, they need a sales contract and a service contract.
Stock Purchase Agreement
If you, as a business owner, need to get investments and raise funds, one way to do it is to sell your company’s stocks.
Stock purchase agreements can vary depending on the deal. They can be as short as five pages, or go on for several more pages depending on the deal, the number of stocks you’ve sold, the terms and agreements, and more.
Stock purchase agreements include the number of shares, the price of shares, the warranties your investor has provided and their rights, and more. You’ll need to work with experienced business lawyers to formulate these agreements because they are crucial.
Letter of Intent
The letter of intent is a type of document that can benefit businesses a lot. This document is more of a handshake agreement on the majority of the points in contention in any deal, leading to a legal agreement in the future.
The letter of intent can be non-binding or binding, per your requirement. If you want it to be binding, clearly state the terms and agreements you and the other party have agreed upon, and state the time of the legal agreement. A non-binding letter of intent leaves room for further negotiations and offers flexibility.
Indemnity Agreement
Indemnity agreements are contracts that ensure the company’s customers, clients, vendors, or business partners won’t file a lawsuit against the company in case of any unforeseen event.
For example, hospitals get their patients to sign indemnity agreements before surgeries, or any business selling a dangerous good that can cause hurt a person or damage a facility usually gets the indemnity agreement signed by their client.
Terms of Use Agreement for Company Websites
We live in a digital world. Most businesses set up a website soon after (or even before) launching, as they should. This website can be used for marketing, as an online shop, for business agreements, and more.
Since the website is accessible to the public, a company needs to formulate a terms of use agreement to which any website user must agree before proceeding forward. This terms of use agreement provides limitations on how the general public can use the business’ website, copyright protection, disclaimers, liability limitations, disclosure of information, jurisdiction for disputes, and more.
Lease
A business, when it grows, needs a dedicated working space. Getting a business lease is often a priority for business owners. This is one of the most important contracts for any business, whether a start-up or a settled business. Having everything regarding the lease written down and signed by both you and the landlord is the right way to go.
A business lease ensures a lot of things, such as:
- The space is sufficient for you
- The landlord permits you to use the space for your business activities
- It’s legal to conduct business activities on this property
- The lease terms are agreed upon by both parties and can be extended with mutual consent
- The economic terms of the lease are reasonable
- Limitations on sub-letting, tax payments, operating expenses, etc
Loan Agreement
New businesses often take out loans from banks or other financial institutions by signing the standard loan form these institutions provide. However, this loan form is a one-sided document that protects the financial institutions, not the company taking the loan.
This borrowing company should get the financial institution to sign the loan agreement that states everything regarding the loan they are taking out, including:
- The total amount of money taken as a loan
- Cost of loan and interest percentage
- Payment schedule
- Purpose of loan
- The flexibility of use for the loan amount
- Warranties of the borrower
- Terms and conditions of the loan, like the situations that can trigger a default, rights to cure defaults, and more.
Hire a Business Lawyer for Your New Business
All of these business documents are crucial for any start-up. However, it’s almost impossible to formulate the right contracts without legal help. An experienced business lawyer can help your company draft perfect contracts for every occasion. If you’re searching for an experienced business lawyer, Nanda & Associate Lawyers can help you.
We have a team of experienced business lawyers that can manage your civil suits. Moreover, we also qualified immigration lawyers, civil litigation lawyers, personal injury lawyers, wills and estate lawyers, and more. We offer our services in Toronto, Mississauga, and Brampton.
Book a meeting with us today to hire our services.
Disclaimer: This article is only intended for educational purposes and shouldn’t be used as a substitute for legal advice.
