11 March 2024

Three Essential Contract Agreements Every Small Business Should Have

By Ronald Smith

Running a small business can be both exciting and challenging. As a small business owner, there are certain contract agreements that can help protect you and your business. In this article, I will discuss three important contract agreements that every small business should have in place to avoid potential issues and ensure smooth operations.


Client Agreement

When working with clients, it is crucial to have a well-defined and legally binding client agreement. This contract agreement outlines the terms and conditions of the business relationship between you and your clients. It specifies important details such as the scope of work, payment terms, project timelines, and responsibilities of both parties. By having a client agreement in place, you can prevent misunderstandings, clarify expectations, and protect your business interests.


Employment Agreement

If you have employees working for your small business, an employment agreement is essential. This contract agreement establishes the rights and obligations of both the employer and the employee. It covers important aspects such as job responsibilities, compensation, benefits, working hours, and termination procedures. By having an employment agreement, you ensure that both parties understand their roles and responsibilities, which can help prevent workplace disputes and legal issues.


Non-Disclosure Agreement (NDA)

A non-disclosure agreement (NDA) is crucial for protecting your business’s confidential information, trade secrets, and intellectual property. This contract agreement is often used when sharing sensitive information with employees, contractors, or business partners. It ensures that the recipient of the information is legally bound to keep it confidential and not disclose it to others. By having an NDA in place, you can safeguard your business’s competitive advantage and prevent unauthorized use or disclosure of valuable information.

In conclusion, as a small business owner, it is important to have certain contract agreements in place to protect your interests and ensure smooth operations. A client agreement helps clarify expectations and prevent misunderstandings with clients, an employment agreement establishes the rights and obligations of both the employer and the employee, and a non-disclosure agreement safeguards your business’s confidential information. By having these contract agreements, you can run your small business with confidence and minimize potential legal risks.

Three Essential Contract Agreements Every Small Business Should Have

It might be tempting to seal a deal with a handshake. I mean, all those formalities just slow things down and, as a small business owner, you’ve got a million other things to do. But let me tell you, when you make a contract, it’s like building a strong shield of legal protection for you and your business, just in case anything goes wrong.

Now, every business has its own unique needs, but there are three common contracts that you should definitely have in place:

Make a Contract: 3 Essential Contracts You Need

1. Partnership Agreement

If you’re starting or running a business with someone else, it’s important to have a written agreement. Even if your business partner is your spouse, best friend, or sibling, having a partnership agreement from the beginning can help you navigate the inevitable issues that arise when running a business.

  • Decide on contributions: Talk about what each of you will bring to the table – whether it’s labor, time, money, property, or customers. Will one of you work full-time, part-time, or be a silent partner?
  • Decide on payment: Figure out how profits will be divided. Will each partner receive a salary for their role in the business? How much? And what about extra profits?
  • Know how we make decisions: Let’s talk about the different decisions we’ll need to make as partners. Some decisions may require all of us to agree, while others can be made by just one of us. It’s important to figure out the best decision-making structure that will help our business run smoothly and make sure everyone feels included.
  • Figure out ownership: We should decide what happens if one of us passes away, retires, goes bankrupt, or wants to leave the partnership. It might be a good idea to include a non-compete clause in case a partner leaves and tries to take our customers or start a competing business.

If you search online for a partner agreement template, you’ll find many partnership contracts that can help us out.

Just a friendly reminder that even though you and your partner(s) might be on the same page right now, things can change pretty quickly over the next few years. But don’t worry, I’ve got a solution for you! By having a few conversations and taking care of some administrative stuff to create a contract right from the start, you can save yourself from any headaches or legal battles down the road.

2. Keep It Secret: Non-Disclosure Agreement (NDA)/Confidentiality Agreement

Whenever you need to share your company’s special and important information with someone, it’s always a good idea to ask them to sign a non-disclosure agreement (NDA). Your company’s important info can include things like the secret sauce behind your mobile app code, your awesome business plan, marketing strategies, financial forecasts, and even your list of clients and customers. Just make sure you keep it safe!

If you’re looking for a sample NDA template, SCORE has got you covered. But before you jump in and start using it, it’s always a smart move to have it reviewed by your attorney. Better safe than sorry, right?

3. Independent Contractor Agreements

You know what’s handy for small businesses? Outsourcing to independent contractors. It’s a neat way to get some extra help, fill a specific need, or bring in specialized expertise. Plus, it’s a flexible arrangement where you don’t have to worry about workers’ compensation, payroll taxes, or employee benefits. So far, so good, right?

But wait! Hold on a sec. Here’s the thing. The IRS is on high alert for employers who misclassify their workers as independent contractors just to dodge those pesky payroll taxes and other costs. So, tread carefully and make sure you’ve got everything accounted for.

That’s why it’s a good idea to have a contract. Make a special agreement that clearly explains the relationship between you and the worker. Let it be known that you want the worker to be an independent contractor who takes care of their own taxes. Also, the agreement should not have too much control over how the work is done. Avoid setting specific hours or locations for the work.

Having this agreement won’t guarantee complete protection from an IRS audit or a ruling on misclassification. However, it does serve as evidence that you intended to hire an independent contractor.

When it comes to these three contracts, just like any legal process, it’s always a good idea to invest some time. It’s better to create a contract and take care of it ahead of time, rather than waiting until you actually need it. By then, it’s usually too late. If you have any questions or simply want a professional to review a contract, don’t hesitate to talk to a lawyer. Your business deserves it.

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