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In my own fifteen years of helping smaller businesses, the most typical question I hear from budding companies is, “The type of legal agreements do I want?” As an excellent lawyer, I used to answer with the response entrepreneurs hate most: “This will depend!” When pressed for a summary of the most typical, or most significant, there are three main agreement categories virtually all businesses can reap the benefits of.
Whenever starting a business, it doesn’t matter if you’re a corporation, LLC, or partnership. Should you be in business with someone else, you will need a written agreement with all co-owners. These could be:
• Operating agreement • Shareholders’ agreement • Founders’ agreement • Partnership agreement
All share an identical function, which is to guarantee the deal between co-founders is defined in stone so everyone can concentrate on building the business. An excellent agreement outlines ownership percentages, capital contributions and disbursements/salaries. In addition, it acts as the business “prenup,” detailing exactly what will happen to the business enterprise if you opt to part ways.
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In the past, I mentioned this to a distant friend when he was setting up a fresh company. He noted he didn’t want to invest the amount of money on a shareholder agreement and believed all of the business partners were on a single page. Unfortunately, one wasn’t, and some years later he was over $40,000 into litigation with one of is own former partners. He paid an enormous price ultimately for devoid of an owner agreement and finally folded his businesses when the legal bills became an excessive amount of.
Remember, in the event that you neglect to implement a formal agreement, there may be costly consequences ultimately. Make sure to put it on paper and save the trouble later on.
In the event that you don’t have employees, you could be skeptical, but this agreement includes independent contractors aswell. They are the people designing your site, managing your database, or performing your legal and accounting work. Even if they’re not your full-time employees, they remain working out for you and you must have the terms of the offer fully fleshed out before work commences.
Numerous times I’ve seen over-anxious companies hire a designer or development company with out a formal agreement, then found me upset noting they didn’t perform to the proper standards, were taking too much time, and even worse – they took the amount of money and did nothing. Lacking any agreement, you may win a court battle, however, not without spending lots of money and time.
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To ease this risk, I advise every entrepreneur to get a form independent contractor agreement, one with an individual exhibit that sets out the duties, timing, payment and other details specific to the engagement. Also, have an application employee agreement you need to use to make sure your employees have decided to provisions like assignment of inventions, confidentiality, and non-solicitation.
Outside of devoid of real legal documentation, one of the primary problems I’ve observed in this area is a business proprietor that treats a contractor as an employee. When you are controlling hours and job duties, and providing them with work area and equipment, you must check with counsel in the event that you really have a worker. The penalties could be stiff for improper classification, including back pay, benefits, vacation and even tax and withholding problems.
Customer and Vendor/Supplier Agreements
When starting and growing a business, customers will be the all-important way to obtain revenue, with the vendors and suppliers used to satisfy customer demand next in line. Each and every time you make a sale, you have contracted together with your customer, and that contract has to be made to help frame the partnership with them and offer all parties with the legal protections bargained for. In e-commerce, these contracts are usually “click-wrap” agreements like terms of service and privacy policies that set the service level and expectations for the buyer.
For vendors and suppliers, you’ll want a way to make sure that your needs are met – and by proxy, the needs of your visitors. Terms like indemnification, exclusivity and limitations of liability all must be carefully drafted to create legal and business sense.
Generally, the agreements outlined above certainly are a really great place to begin to ensure you as well as your business are protected. Make sure to put these agreements set up early to mitigat