You might be tempted to seal a deal with a simple handshake. After all, redacting business documents and going through all the legal procedures just slow things down. If there is one thing you can’t afford to waste as a small business owner is time, right?


3 Essential Contracts

When it comes to running a business, there’s another thing more valuable than time: money. So, while you might be saving money with a handshake, you could potentially lose hundreds of thousands of dollars if things don’t work as planned.

A business contract plays a vital role in safeguarding the interests of your company and providing legal protection, should the need ever arise.

Here’s a list of three essential contracts that every small business needs.

Non-Disclosure Agreements

Any business, even the smallest one, has important data that needs to protected. You probably don’t want to share with the world, information and valuable insights about your customers, stakeholders or your new pricing strategy. So, how can you ensure that an employee isn’t going to leak important data after he or she is no more with the company?

That is where a non-disclosure agreement (NDA) comes in handy.

A non-disclosure agreement is the first line of defense to safeguarding your private information. This legal document creates a confidential relationship between you and your business partners, employees or a contractor who know important things about how you run your business.

By signing an NDA, they are legally required not to share any sensitive information with other parties, especially not with your competitors. If they do so, they would have to face the consequences stated in the document, such as paying a hefty fine.

Partnership Agreement

The majority of people partner with someone to start a business, be it a friend, a family member or an ex-coworker. Even if you trust the person 100%, you established various rules to go by, you divide responsibilities and also agree on how to share the profit, you have to have an agreement in writing.

Here are some of the most important issues you should address in this document.

  • Establish Responsibilities: It’s imperative to state what you and your partners have to offer – who will bring the cash, the property, the customers, the labor, the time, and so on. Determine the time and effort each of you is willing to invest in the business. Maybe you are ready to work 80 hours a week to grow the company, but your partner might be less invested. Make it clear from the beginning what role every partner will play in the company.

  • How Are You Going to Pay Yourself: Decide how you will distribute the profits. Will each partner be paid a fixed salary base on their role in the company and their level of commitment? If so, how much?

  • Who Makes the Decisions: Decide from the beginning what types of decisions can be made by a single partner and which ones require a unanimous vote.

  • What Happens Next: What should happen if one of you passes away, retires or just wants out? What if you go bankrupt? These are all important things that you need to ponder when starting a business with a partner. Consider adding a non-compete clause, as well, to protect your business if your partner ever decides to leave, taking all of your customers and know-how.

You may be on the same page now, but things can change over the course of years. If you take the time and craft a partnership agreement from the beginning, you can avoid a lot of trouble during difficult times.

Employment Agreement

Not every single hire requires to an employment agreement to be signed, but this contract can be extremely valuable if you want to discourage people from disclosing confidential information, leaving the company too soon, or going to work for the competition. Use this contract to establish the obligations and expectations of the company and employee and minimize or reduce future disputes.

Numerous other documents can safeguard your business, such as operating agreements or apostilles. However, these three are the ones that will help you build the foundation of your company. Take the time to identify any potential issue that might affect your company in the future and include clauses in your contracts addressing each situation.