5 Top Must-Have Contracts Every Small Business Needs to Survive

Contracts may a crucial role on the survival and future of your business.

Law of contract is important because it gives an importance and enforceability to a promise.

While oral agreements can be used, most businesses need formal written contracts when engaging in business operations.

Written contracts provide individuals and businesses with a legal document stating the expectations of both parties and how negative situations will be resolved.

Contracts also are legally enforceable in a court of law. Contracts often represent a tool that companies use to safeguard their resources.

With that being said, here are 5 must-have contracts that every small business needs to survive…

1. Independent Contractor Agreement

Independent contractors are not considered employees of your company because they are self-employed specialists that are offering their service to you.

It is common these days to outsource for a specific task that you need or an added help for a specific time. This type of contract will serve both the business and the contractor on the other end.

An Independent Contractor Agreement clearly states the relationship between the contractor and the business and tasks or services that is expected from the contractor.

The independent contractor is considered as self-employed thus, he is responsible for filing his own taxes. The contractor can use this agreement to remind businesses that they do not have that much control on how the work should be done nor they have control over the working hours preferred by the contractor.

You, as the business should make sure that something like this is stated in the contract because controlling how and what will be done by the person will make him not just as a contractor but an employee who is entitled to benefits and payroll taxes.

Phrases of the contract that says something about reporting on this specific time or regular report to work on this place are markers that you are already controlling the worker on how to do his work.

Note that the Internal Revenue Service is vigilant of employers who intently mis-classify workers to be independent contractors instead of employees in the attempt to avoid payroll taxes, employer-employee benefits, and more.  

    Make sure that there are no misunderstandings when drawing the contract to avoid future conflicts.

Having an agreement at the very least will prove that you really intend to hire an independent contractor rather than an employee.

The contract however will not serve as a justification for the misclassification and the IRS will still get you. If you are not sure about the specifics of a contract, it will not hurt to get the services of a contract lawyer to make or review the contract for your business.

2. Employment Contract

It may be verbal but it would be wise for small businesses to have an Employment Contract written and signed by the employer and the employee.

Employment Contract is a legal document that defines the scope and conditions of the employments terms. It usually contains the name of the employee, the start date, and the salary. Other specifications may be added such as health benefits, grievance procedures for the employee, and the vacation and sick leave.

As it is legally binding document, it may be used for or against your favor. Clearly stating the benefits and incentives of an employee is good enough reason for them to stay and work hard for your business.

However, a termination clause could also be used by the employee to remind you that you have no power to terminate him because you want to. Well, this depends on what termination agreement you have.

Many states are recognizing the “at will” employment where the employer may fire the worker and the worker may also leave any time. Meanwhile, there is also an implied contract where it means that the employee’s termination will only happen as a result of a disciplinary action.

This gives the employer a limited power in firing an employee and binds you to an employee-employer relationship for a specific period of time. For small business, including in the contract that the employee will only be retained as long as there is budget for his salary or as long as the profit is as big as this percentage was done in some cases.

Depending on what kind of business you are in, you may want to add the ownership of ideas or inventions clause. This means that any invention that an employee came up with during his employment will be the property of the business and not the employee.

The exclusivity agreement is another common feature for this type of contract where the employees are asked not to work with rivals or other businesses that are in the same category.

3. Partnership Agreement

Doing business with someone else regardless of your relationship – may it be your spouse, your child, your parents, your siblings, your friends and so on – a Partnership Agreement always play a crucial role.

In other words, it means that anyone who is planning to engage in a partnership venture must draw out this important contract as part of establishing your business.

This will state the important aspects in the business and how it will be dealt with in the future in case that it arises. Doing so will help you have a set of rules to follow that could possibly prevent minor disputes from escalating into major ones.

Inclusions on agreement may vary depending on the set of goals and the business structure that you have. The list below will give you an idea of the usual parts of the contract…

 

1. The name of the business partnership may take the first part and you may use your names

For example, it could be Jones, Smith & White or something that would describe your business like Uncle Sam’s Law Services. Make sure that it is registered and available for your use.

 

2. Specific contributions and authority of the partners

There are cases in partnerships where the other will give the cash needed while the other will do all the work. These must be clearly indicated in the agreement with the detailed influence that they could make for the company and during the decision-making.

 

3. Clear definition of how to deal with the decision-making

These cases could include matters of death or withdrawal of partner, profits and losses of the business, resolving disputes, and other concerns that you think might possibly arise.

 

4. Whom gets what and how much do each of you get

Venturing into business is mostly about money and this is almost the concern of business partners in the future. Agree specifically how you are going to pay for the services rendered by each member.

Is it proportional to the asset or the work contributed? Try to give a specific percentage if possible because general descriptions in the agreement like bigger and smaller may only contribute to confusion.

And other clauses that you may include are rules about accepting a new partner and about the management of the business.

 

5. Confidentiality Agreement

Confidentiality Agreements contract means non-disclosure of information to a third party hence protecting ideas or strategies developed by your business.

However, this is not limited to what have just been mentioned. Rather it involves all the proprietary information of your business that may include but not limited to client list and their information, your business plan, minutes or whatever transpired during a meeting, and so on will be kept in secrecy by the worker.

Please note that this could also apply even if the other party is not your employee. If you are employing individual contractors, the more reason to have them sign a contract like this to prevent leak of proprietary information.

Leakage of your client’s information could damage not only the name of your business but also the trust of your customers. This could eventually lead to loss of clients or the doom of your business.

It would be of help if confidential information were defined in the contract to prevent confusion as to what are the things or ideas that are covered by the agreement. It should also be explicit as to what forms will be credited as confidential.

Are you going to include information that were discussed verbally or would it cover only documents that are stamped with the word “confidential’ on it? How will the other party know that verbally transmitted information is confidential or not?

It would also be fair to put what are the exclusions from the non-disclosure agreement so that the other party is guided. Will it be considered as breach of contract if it is the employer who gave the approval to disclose the information to another party? How should the approval be given to be sure that it is valid?

The time covered by the confidentiality agreement is another important aspect. How long will the other parties be covered with the contract?

Are they covered as long as they are working with you or will it last until the information is deemed not important anymore? How and when do they know when an information no longer qualifies as confidential?

Regardless of what type of business you are in, consulting a professional regarding this matter is always a great idea. Taking care of your business after all takes precedence if you want to last in the competition.

 

Website Terms of Use & Privacy Policy

Nowadays, social marketing seems like an integral part of any business thus, having a website for your business becomes a common idea. However, the internet is also full of hackers that some of the potential clients are hesitant to divulge personal information.

How are you going to contact customers if you do not have their information?

Ensuring the privacy of your clients in accessing your website is essential.

The customer’s information is not the only thing that matters here, as you also need to be transparent on what they should expect while using your site. That means that your business also needs clear terms of its use.

Despite the fact that there are hundreds of templates available at the internet, consulting a small business lawyer is a great idea because he can help you make sure that this legal document is right for you.

The scope of the terms of use and privacy policy may have slight variations due to differences of business types. Regardless, there are basic information that are always included in this type or contract.

The products and services that you offer must be addressed so that the guests of your site are aware of the extent and limitations of your offers.  Always be truthful in this aspect because this is considered as legal document and may be used against you in case of fraud.

Engaging in business means there are prices and payments that should be made and it is only logical that you as the owner should protect the buyer’s information. As a result, guarantees are always part of the contract.

There are different guarantees that may be involved here. Foremost is the assurance that their information is safe. The other pertains about the quality of the product or service that you are offering. With this comes another aspect that is associated with it, the warranty.

If you are confident about what you are selling, there should be no fear of providing a warranty to make the clients more at ease with your business.

Business owner or not, you may already be familiar with the clause saying about the modification of agreement. Do you remember how it is usually mentioned in advertisements that the price of certain product is “subject to change without prior notice”?

The same idea applies to this kind of contract where it would be to your benefit as the business owner to put there that you are free to modify the terms and agreements written anytime.

Mollaei Law is a law firm specializing in business law serving businesses and entrepreneurs. We provide legal expertise in all stages of business development by drafting and reviewing contracts and agreements, assisting transactions and negotiating, forming LLC’s and Corporations, registering trademarks and copyrights, business planning, and answering any legal questions you may have about your business.

Do you want to make a contract for your business but do not know how?

Contact Sam Mollaei, Esq., business lawyer, at [email protected]

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