Essential Contracts for New Businesses: The Top 5 You Need

Starting a new business is an exciting endeavor, but it also comes with a plethora of legal considerations. As you embark on your entrepreneurial journey, it’s crucial to ensure that your business is protected and operating smoothly from the get-go. One way to achieve this is by having the right contracts in place. It’s important to detail responsibilities in writing and consider the relationship and appropriate protections. We’ll delve into the top 5 contracts every new business should have: Founder’s Agreement, Customer Agreement, Non-Disclosure Agreement, Independent Contractor Agreement and Offer Letter. 

Let’s explore why each of these contracts is essential:

• Founders Agreement: When launching a business with co-founders, a founder’s agreement is a must-have. This contract outlines the roles, responsibilities, equity distribution, decision-making processes, and exit strategies of each founder. It sets clear expectations from the outset, helping to prevent potential disputes and ensuring that everyone is on the same page. A well-drafted founder’s agreement helps foster a healthy working relationship among co-founders and provides a framework for addressing issues that may arise down the road.

• Customer Agreement: Your customer agreement outlines the terms and conditions under which your products or services are provided. Some important terms and conditions include payment terms, delivery or service expectations, refund and return policies, length of agreement and termination rights and any disclaimers of liability. A well-drafted customer agreement helps manage customer expectations, minimize disputes, and protect your business from potential legal challenges.

• Non-Disclosure Agreement: When sharing sensitive information about your business with potential partners, investors, employees, or contractors, a non-disclosure agreement is crucial and the purpose for sharing confidential information should be included. An NDA ensures that the recipients of your confidential information are legally bound to keep it confidential and not use it for their own benefit. NDAs can be unilateral, protecting only one party’s information, or mutual, protecting both parties’ information. NDA’s are vital for safeguarding your trade secrets, proprietary information, and business strategies.

• Independent Contractor Agreement: One of your first hires will likely be an independent contractor, and therefore having an independent contractor agreement is essential. Some of the terms and conditions included are the scope of work, payment terms, project timelines, and intellectual property rights. It clarifies the contractor’s status as an independent entity rather than an employee, which helps mitigate potential misclassification issues and ensures that both parties understand their respective responsibilities.

• Offer Letter: When hiring employees, an offer letter is a fundamental document that outlines the terms and conditions of employment. It covers important details such as job title, compensation, benefits, work hours, any probationary period and confidentiality. An offer letter sets clear expectations for the employee and serves as a reference point in case of disputes or misunderstandings. For higher level executives, companies often use Employment Agreements instead of Offer Letters. You can learn more about the do’s and don’ts of employment agreements here. 

Having the right contracts in place is essential for the smooth operation and protection of your new business. These top 5 contracts—Founder’s Agreement, Customer Agreement, Non-Disclosure Agreement, Independent Contractor Agreement, and Offer Letter—address various aspects of your business relationships, from co-founders to customers, partners, and employees. By investing time and resources in creating these contracts, you’re not only safeguarding your business but also setting a strong foundation for growth and success. Of course you should always consult with a legal professional to ensure that your contracts are tailored to your specific business needs, risk tolerance and comply with relevant laws and regulations.