Three Contracts EVERY Small Business Needs

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Starting a new business is an exciting – but difficult and expensive – process. While it is important for small and new businesses to be cost conscious, there are three contracts that are essential for EVERY small business, and these contracts won’t break the bank.

An Operating Agreement (or a Founders/Partnership Agreement) is critical for every business, regardless of how small. An operating agreement clarifies the company’s functions and financial processes, including how much money the business will provide to its members. Ultimately, an operating agreement is a binding, written, contract between the members that helps the members remember their oral agreements. There is one other critical benefit of an operating agreement: it protects a company’s limited liability (“LLC”) status. A company’s LLC status protects members from facing individual legal liability for the company’s potential conduct.

Another important agreement, especially for a business that is in the process of expanding, is a Confidentiality/Non-Disclosure Agreement (“NDA”). An NDA helps protect a company’s trade secrets. Through an NDA, the business and another party or company agree to keep certain information secret. These trade secrets could include a sales plan, customer lists, or maybe a formula for a product. An NDA allows a business to work with another party or company, while minimizing the risk of losing important information.

Finally, a Client Contract or Sales Agreement is necessary to clarify a relationship with a client to prevent confusion later on. These contracts should explain the product or service the business will provide to the client, indicate the key terms, explain the client’s and company’s responsibilities to each other, include confidentiality language, and explain how the business or client can terminate the relationship. Thus, these contracts help foster a better relationship between the business and the client. These contracts also lead to realistic expectations between the client and the business.

Ultimately, hiring an experienced law firm to create these legal documents is a great investment for a business to help prevent expensive disputes, and misunderstandings.