As a business owner, it’s important to familiarize yourself with the various types of contracts essential to running your business, such as Shareholder/Operating Agreements, Employment Agreements, Restrictive Covenants protecting Proprietary Information, Buy/Sell Agreements, Customer Contracts, and more. The more you build your brand while protecting your business, the more you establish successful partnerships and deals, which require well-written contracts. These contracts protect your business and clearly outline the terms of each agreement. That said, involving a business attorney is crucial for each contract arriving on your desk. They will go through them and ensure your interests are protected.
The Importance of Contracts
Contracts set a legal framework for an agreement between two or more entities/individuals. Once you sign a contract, you’re legally bound by the terms of that agreement. Whether you have read the contract and understood the terms or not, you’re legally required to comply with those terms after signing it. Not complying with those terms is a breach of contract, which can lead to expensive lawsuits, injunctive relief, and monetary damages. That is why it is always important to consult an experienced attorney before you sign and as soon as a dispute arises to help you understand how and when certain conduct can be deemed a breach and what your legal remedies are.
You need a contract for the following reasons.
- Provide Clarity: Contracts outline the expectations, roles, and obligations of each party, helping to prevent misunderstandings. For example, a contract with a consultant can specify the scope of work, payment terms, and deadlines, ensuring both parties know what is expected.
- Promote Fairness: Well-drafted contracts protect fairness by balancing the interests of all parties. For instance, an employment contract can include terms that protect both employer and employee rights, promoting a fair and respectful working relationship.
- Manage Risks and Offering Legal Protection: Contracts manage risks by specifying consequences for failing to meet obligations, reducing the chance of financial loss. For example, a supplier contract might include penalties for late deliveries, ensuring that both parties adhere to their commitments.
- Build Trust: A legally binding contract reassures both parties that their commitments will be honored, fostering trust. For instance, an agreement to sell goods can detail quality, delivery dates, and payment terms, establishing a trustworthy relationship.
Types of Contracts Your Business Will Need
Let’s look at some standard business contracts that can help you operate your business legally and efficiently.
Shareholder/Operating Agreements
This legal agreement outlines a business entity’s structure, operations, and management, such as a corporation, limited liability company (LLC) or partnership. This type of agreement defines the roles and responsibilities of the business owners, partners, or members, as well as the procedures for making decisions, distributing profits, handling disputes, transfer rights, and dissolving the business.
An operating agreement is an example of a business entity contract. It’s used for LLCs and outlines how a company will be run, the duties of managers and members, decision-making processes, and the procedures for adding or removing members.
Employment Contract
Employment agreements are one of the most common contracts your business needs. As long as you have hired someone to help you with the daily operations, they need to sign a contract. An employment contract sets the terms of the relationship between you and your employee. It covers details such as compensation, employment period, benefits, work obligations, employee classification, and termination and severance.
Termination Agreement
This contract ends your relationship with your employee in a straightforward and precise manner. It specifies the reasons for ending the contract, such as not meeting job expectations, and outlines any remaining responsibilities, like returning company materials. It will also include critical details like the names of those involved, the termination date, and the specifics of any severance pay, ensuring everyone agrees to the contract’s end.
Non-disclosure Agreement
Non-disclosure agreements (NDAs) are used by businesses to protect their confidential information. These agreements define what must be kept private by employees and contractors. For example, protecting things like internal refining processes or customer lists is vital in specific fields like oil and gas. Having everyone sign an NDA helps businesses secure their sensitive information. The company can pursue legal action to enforce the NDA and seek compensation for any resulting losses if a breach occurs.
Contractor Agreement
Businesses will likely deal with independent contractors such as accountants, web designers, and legal advisors. When hiring them, you’ll need a contractor agreement. It should clearly define the contractor’s services, the payment terms, and other relevant details about the work. It should also include the actions the business can take if the contractor doesn’t complete the job correctly or makes mistakes. If issues arise, having a signed and enforceable agreement is essential for resolving disputes.
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Lease Agreement
This type of contract comes into play when renting space to do business. It highlights the terms and conditions under which the tenant and the landlord agree to manage the rental. Some prominent elements in a lease agreement include rent amount, lease duration, maintenance responsibility, and renewal options. A lease agreement ensures both parties know their responsibilities and rights and helps prevent conflicts during the rental period.
Vendor Agreement
A vendor agreement is a contract between a business and a supplier for goods or services in return for payment. These agreements can range from simple to very detailed, based on the needs of both parties. Given the nature of supply chains today, having a well-drafted vendor agreement is essential. Whether for a one-time purchase or a long-term relationship, vendor agreements help both parties by clearly outlining expectations and setting consequences if those expectations are not met.
Equipment Lease Agreement
An equipment lease agreement allows a business (lessee) to use equipment owned by another party (lessor) for a set period without owning it. The agreement specifies the lease term, payment details, and maintenance responsibilities. This contract helps businesses access necessary equipment without the significant upfront costs of purchasing while still ensuring that they meet their operational needs.
These are some popular contract types your business will likely encounter. If you have questions about a business contract or need help drawing one, Stone Studin Young & Nigro Law Group can help. Contact us today, and let us help you find the right solution.
See also:
When Do You Need a Long Island Business Lawyer?
How to Buy Out Your Business Partner in Long Island, NY
Why All Long Island Business Owners Need Prenuptial Agreements