The last couple of years have been hard for many small businesses. As the landscape continues to show signs of progress and improvement, 2022 presents a myriad of opportunities to set your small business up for success going forward.
While there are some obvious needs for your business in 2022, such as marketing your business and boosting your sales revenue, don’t forget to protect your business legally with essential business contracts.
What Is a Business Contract and What Does it Do?
A business contract is a legally binding, good-faith agreement between two parties concerning the buying and selling of goods and services. A business contract protects your business and your business partners while providing clarity around the agreements you have made.
By clearly defining these relationships, expectations and obligations in a contract, all parties will be protected in the event of a disagreement or other potential legal dispute. Business contracts are indispensable to your business.
In order to be legally binding, a business contract must contain the following elements:
- Offer: one party makes an offer to another party
- Acceptance: the party to whom the offer was made accepts the offer
- Consideration: defines who is “paying” what; this could be monetary or non-monetary such as knowledge in the field or expertise on a subject
- Competency: both parties must be competent and capable of entering a legally binding contract
Generally speaking, a business contract should be written in order to be enforceable; each state has different laws regarding whether or not verbal contracts are valid. Regardless of whether verbal contracts are legal in your state, consider defaulting to written contracts in order to maximize your protection in the event of default or other legal issues.
While your business can certainly opt to write its own business contracts from scratch, utilizing a business contract template is an easy and convenient way to begin. Most business contract templates are purchased in a generic format and then updated with your business’s specific details. Incfile offers a package of lawyer-approved business contract templates that can cover your bases without needing to be a lawyer yourself.
One bad contract can set your business back thousands of dollars or more; you owe it to yourself to investigate the best solution for your company and make sure that essential business contracts are in place to protect you and your business.
15 Essential Business Contracts
Below, you’ll find 15 of the most important business contracts that will help you to run your small business in a legal and effective way. Consider each one and whether it would be helpful to your business.
LLC Operating Agreement
An LLC Operating Agreement details the ownership framework, rights and responsibilities of the members and managers who run an LLC. An Operating Agreement typically includes:
- Ownership stakes and profit-sharing
- How financial decisions are made
- Information on adding and removing owners of the LLC
- Rules and regulations for the business
An Operating Agreement is a key document for an LLC since it defines financial and functional decision-making.
When and how to use an LLC Operating Agreement:
- Create an LLC Operating Agreement when you are forming the business and deciding on any members or managers with an ownership stake.
- Get buy-in from all members and managers and have them sign the agreement.
- Ensure that any new people who have an ownership stake understand and sign the Operating Agreement.
- Amend the Operating Agreement as needed ensuring it is agreed to by all owners.
Special considerations for LLC Operating Agreement:
- The following states require you to have an Operating Agreement if you have a domestic or foreign LLC there: California, Delaware, Maine, Missouri and New York.
- Only new York requires you to have a written Operating Agreement; the other states listed are content for you to have an oral Operating Agreement.
- Even if your state does not require an Operating Agreement, it is still a good idea to get one in place.
Non-Compete Agreement
A non-compete agreement places certain restrictions on business employees and contractors. These restrictions are typically to prevent someone from engaging in activities that would compete with your business or from taking clients away from your business. Non-compete agreements are designed to protect your business interests.
When and how to use a non-compete agreement:
- Implement a non-compete agreement when you are onboarding employees or contractors.
- Make your non-compete a condition of employment.
- Enforce your non-compete if you discover that individuals are in breach of the contract and could potentially be damaging your business interests.
Special considerations for non-compete agreements:
- Non-competes are typically only enforceable in specific geographies and for a specific time period.
- Some non-competes may not be enforceable in certain states, regions or geographies.
- Non-employees, such as freelancers and independent contractors, may refuse to sign non-competes.
Sample template from Incfile
Non-Disclosure Agreement
A non-disclosure agreement (NDA) prevents people from sharing certain business-specific information or trade secrets with anyone outside your business. An NDA protects important information that’s shared with other authorized people and prevents unwanted further distribution.
When and how to use an NDA:
- Implement an NDA when you are onboarding employees or contractors.
- Make your NDA a condition of employment.
- Enforce your NDA if you discover that individuals are sharing information inappropriately.
Note that the details, legality and enforcement of NDAs can vary by state.
Independent Contractor Agreement
An independent contractor agreement sets out the terms and conditions that you expect freelancers and other independent contractors to follow when they work with your business. These agreements can vary in what they cover and may include areas like:
- Expected roles and responsibilities
- Invoicing and payment
- Rules and regulations they need to follow
- How you will work together
- The scope of work
When and how to use an independent contractor agreement:
- Implement an independent contractor agreement as part of onboarding freelancers and independent contractors.
- Make the agreement a condition of working with an independent contractor.
Employment Agreement
An employment agreement sets out the terms and conditions that you expect employees to follow when they work for your business. These agreements can vary in what they cover and may include areas like:
- The hours you expect employees to work
- Compensation, including salary and benefits
- Standards you expect employees to meet
- Rules and regulations, either within the contract itself or referring to an employee handbook
- Reviews, opportunities and disciplinary practices
When and how to use an employment agreement:
- Implement an employment agreement as part of onboarding new employees.
- Update employment agreements if roles and responsibilities change.
Note that the details, legality and enforcement of employment agreements can vary by state.
Employment Offer Letter
An employment offer letter is a formal way for you to offer a job to a candidate. It will typically include:
- The position you’re hiring them for
- Details of compensation and benefits
- The start date and time
- Where they need to report to
- Anything they need to bring on their first day
- A link to a full employment contract
Send an employment offer letter once you have decided on the candidate you want to hire in advance of their start date.
Employee Termination Letter
An employment termination letter is a formal notice that tells an employee that they are being dismissed. A termination letter will typically include:
- The position they are being terminated from
- The reason for the termination
- The date the termination will apply from
- Any expectations for them to work out their notice
- Details of any severance package
Intellectual Property Assignment Agreement
An intellectual property assignment lets you formally transfer the ownership of intellectual property from one individual or business to another. Intellectual property can include:
- Patents and inventions
- Copyright and creative work
- Trademarks and brands
- Other areas, including trade secrets and designs
These agreements are often used to transfer rights from a creator to a company and can also be used as part of a larger asset sale or purchase.
Release of Liability
A release of liability documents an agreement for one party not to sue another. These agreements may completely absolve a business of being liable for anything in relation to the other party, or they may be limited to certain areas.
An example of a liability release would be an “Outdoor Adventure” company that requires customers to agree not to sue the business if they are injured during activities.
Sample template from Incfile
Terms of Service
A terms of service agreement is typically used for websites, software and other similar areas. This agreement sets out the rules for using the service and ensures a business is properly protecting itself.
Users who breach the terms of service may have their access restricted or stopped. Terms of service can vary from being simple disclaimers to complete sets of rules and regulations.
Privacy Policy
A privacy policy is commonly used on websites, apps and other online services. A privacy policy sets out:
- How the online service gathers information from users
- The type of information that's collected
- How the information is stored and processed
- What the information is used for
- How the data will be protected
Sales Agreement
A sales agreement formalizes the exchange of goods and services for money. It is often used in business-to-business transactions to clarify the product or service provided, the amount paid, and any special considerations.
Sample template from Incfile
Consulting Agreement
A consulting contract defines the working relationship between a business and any consultants that it hires. These agreements can vary in what they cover and may include areas like:
- Expected roles and responsibilities
- Invoicing and payment
- Rules and regulations they need to follow
- How you will work together
- The consultant’s scope of work
- Expected deliverables and timescales
Partnership Agreement
A partnership agreement is similar to an LLC operating agreement and defines the relationship between business partners and how the business is run. A partnership agreement details the ownership framework, rights and responsibilities of the partners involved in the business. It typically includes:
- Ownership stakes and profit-sharing
- How financial decisions are made
- Information on adding and removing partners
- Rules and regulations for the business
A partnership agreement is a key document for a multi-owner business since it defines financial and functional decision-making.
Cease and Desist Letter (Trademark Infringement)
A cease and desist letter demands that an individual or business stops carrying out activities that may be harmful to the issuing business. This will most commonly be for violations of intellectual property rights, such as:
- People taking advantage of patented inventions without permission
- People infringing on trademarks and brands, including business names and domains
- People reusing creative work when they do not have the copyright
Cease and desist letters are essential to protecting the hard work that you have put into building your intellectual property.
Make Business Contracts Easy in 2022 with Incfile
No matter what business you own, you should think carefully about what kinds of business contracts you might need, what risks you might be exposed to in the course of doing business and how you can revamp your existing contract language to be more precise and protective of your rights.
Good business contracts ultimately protect the interests of buyers and sellers. Having a well-written contract is part of managing your risks, protecting your business income and doing business the right way to reassure and protect your customers as well.
Incfile offers access to a library of business contract templates. They have been written and vetted by specialized business attornies, so you can be sure our contract templates will be accurate.
Paul Maplesden
Paul is a freelance writer, small business owner, and British expat exploring the U.S. When he’s not politely apologizing, he enjoys hats, hockey, Earl Grey Tea, mountains, and dogs.
