As a small business/start up you are always in a rush to grow your business. The entire focus is on bringing the vision to reality rather than building a strong legal base. As a result, you often neglect the importance of entering into business contracts. In fact, most start-ups rely simply on trust and verbal agreements when conducting business in their relationships with shareholders, partners, suppliers and customers. However, not documenting such agreements and understandings properly can prove fatal to business and brand image in the event of a dispute/litigation.
Most small business owners/ start-up founders are unaware of what contracts their businesses need to protect their relationship with other parties. We have identified below 10 essential business documents for start-ups and small businesses while starting out and conducting business operations:
It is crucial to have a central repository of the most common business contracts that a small business/start up will need to kick-start and run the business operation while protecting their business’s interest in any unforeseeable legal battles. However, most business owners do not know where to obtain these templates.
The most obvious way is to instruct a law firm to prepare business contract templates for you. This would easily cost tens of thousands of dollar and many start-ups and small businesses may not have the financial resources to do so. For businesses that would like to save on time and costs or without a legal budget, an alternative way is to create business documents through DocPro. This article lists out the links to the relevant business contract templates where you can tailor them to your need and download them in Word format.
Are you running a small business/start-up without agreements? Here is a list of 10 business contracts templates you need to kick-start and run your small business/Start up:
If you are starting a business with another person then you need to put in place a Shareholder Agreement. It regulates the relationship between the company, its shareholders, and directors and governs how your business will be managed.
It is vital to draft a comprehensive Shareholder Agreement as it will be the go-to agreement in case of potential disagreement between the shareholders.
Here are some key provisions that your Shareholder Agreement must include:
When starting a business with limited budget/resources, the co-founders often make the mistake of running the business without setting up a proper business structure. But as the business grows and starts to generate revenue, issues arise amongst the co-founders and can become a cause of business failure. Without a Shareholder Agreement, you will expose the business to huge risks and litigation costs, howsoever unforeseeable it may seem right now.
A Shareholders Agreement is suitable for the set up of a relatively simple joint venture - a company with equal shareholding. This agreement is drafted for 4 parties and can be in Neutral, Strict or Loose Form.
A Shareholders Agreement to be entered into upon completion or establishment of the Joint Venture Company with standard clauses for minority protection. This agreement is drafted for 4 parties and can be in Neutral Form, or favour of the Majority / Minority Shareholder.
In relation to a Joint Venture / Shareholders Agreement, a guarantee is given by a party's parent to the other shareholders for the party's obligations.
An Investment Agreement is a contract between the company and investors who would like to purchase shares of the company. The investor can be a new shareholder, an external investor or even an existing shareholder.
What does it include:
The Investment Agreement covers the following key provisions:
As your business develops, you will need funding to expand and grow in new areas. It is crucial that you enter into an Investment Agreement and outline the terms and conditions for the incoming investor such as restrictive covenants on selling/transferring of company shares, rights to purchase new shares etc. Since the investors will have ownership rights in your business, it is important to have a well drafted Investment Agreement to minimize the chance of any dispute.
An investment agreement is a contract defining the terms of investment which a single investor invests in a company owned by managers/founders. The agreement is drafted in neutral form.
The NDA prevents any unauthorized disclosure of confidential information to a third party and restricts the use of disclosed information only for the purpose specified in the NDA. The obligations can be mutual or one-sided depending on whether the disclosure is only by you or by both the parties
A good NDA template must cover the following key provisions:
At various stages of business with other parties, you will inevitably share information on intellectual property, private equity investments, business proposals, marketing strategies, customer lists, trade secrets. Since the said information is sensitive and crucial for the growth of your business, it is strongly recommended that you must require the other party to sign the NDA before sharing any confidential information. A signed NDA will provide you a protective framework to freely share confidential data and develop better business relationships with your clients.
This is a two-way Confidentiality/Non-Disclosure Agreement (NDA) for discussion of the business relationship with a mutual obligation of confidentiality. This is drafted in neutral form.
One way Non Disclosure agreement for discussion of business relationship. It imposes a unilateral obligation of confidentiality on the party who receives the information. This is drafted in favour of the Discloser.
In case you are not sure of which version you may need, refer our quick reference guide: https://docpro.com/cat40/general-business/nda-confidentiality-agreement
A Service Agreement is an agreement under which one party agrees to provide services to the other party for a remuneration.
A Service Agreement must include:
If you are in the business of providing a service, then you need to execute a service agreement to define the terms of your relationship with the clients so you both are on the same page and avoid any potential misunderstandings. It also helps you in defining your responsibilities as a service provider and limits your liability in the event of third party claim.
Also, as the business expands, consistent use of Service Agreement with the clients will make the contract management process more effective for you.
A Service Provider providing various services in relation to Customer on a regular, long term basis. Both parties intend for the services to continue indefinitely. This agreement is drafted in Neutral Form.
A Service Provider providing various services in relation to Customer on a regular, continuous or long term basis. Both parties intend for the services to continue indefinitely. This agreement is drafted in favour of the Service Provider.
The employment contract is a legally binding agreement between an employer and employee to outline the terms of employment.
It includes the following key provisions:
The Employment contract is beneficial to both employer and employee as both will clearly understand the scope of employment which minimizes the chance of a dispute. The employee is aware of what will be expected from in terms of performance standards or any unacceptable behaviours at work. If the roles involve handling sensitive information, the confidentiality clause in the contract will ensure the employee will not disclose any confidential information to others.
DOWNLOAD IN WORD OR PDF: Employment Agreement for Junior/Mid Level Staff (simple form)
Employment Agreement between the employer and junior/mid-level employee highlighting employment terms, benefits and restrictions. This is drafted in favour of the employer.
DOWNLOAD IN WORD OR PDF: Employment Agreement (Junior Employee with Share Options)
Employment Agreement between Company and Junior Employee with option for Junior Employee to purchase share options. This is drafted in Neutral form.
The independent contractor agreement is a written agreement that establishes the business arrangement between you and the contractor.
An Independent Contractor Agreement must include:
The main purpose behind hiring independent contractors is to avoid the consequences of forming a legal relationship of employer and employee/agency/partnership with the other party.
You can hire independent contractors to execute certain projects at various stages of business. It is much easier to end the relationship/contract once the project is completed without being responsible for the benefits that employees are entitled to by law.
A freelance Independent Contractor Contract performing a simple job for Customer at an Agreed Price. This agreement is drafted in favour of the independent contractor.
A Memorandum of Understanding/Letter of Intent (“MoU”) is a non-binding agreement that records the intent of the parties to enter into a business transaction and is followed by a formal binding agreement between the parties.
MoU is a common document amongst small businesses and startups for business transactions such as joint ventures/sale of a business. It must include:
MoU outlines the proposed business arrangement which will provide you complete clarity on what to expect from the business relationship. It will enable you to make an informed decision before you decide to enter into a formal binding agreement with the other party. Also, it expedites the transaction that would otherwise turn out to be a lengthy process involving negotiation and drafting of a complex agreement between the parties.
A memorandum of understanding (MOU) in a joint venture situation. This represents the good faith intentions of the parties to proceed but is not legally binding. This document is drafted in favour of joint venture participants other than the leader.
A joint venture is a business arrangement where two or more businesses collaborate with the purpose of pooling their resources on new business activity.
As a small business/ Start-up, you aren’t equipped with all resources and expertise (such as funding, distribution services, technology, marketing expertise, etc.) needed to fuel your innovative business idea. In such a scenario, creating a joint venture by collaborating with other companies and combining their resources with yours to meet defined goals is a smart solution.
There are two ways of creating a Joint venture:
Need more information on whether you should have a joint venture or partnership, check out our blog here: https://docpro.com/blog/joint-venture-partnership-and-llp-what-is-the-best-structure-for-co-operation-free-templates
An unincorporated Joint Venture/Consortium Agreement with a Joint Venture leader and participants to provide service to a client in a particular jurisdiction. The association is for non-permanent services required for a specific project. This agreement is drafted for 4 parties and can be in Neutral Form, with full or no indemnity between participants.
A General Partnership established under local laws. It provides a basic Partnership framework only. This agreement is drafted for 4 parties and can be in Neutral, Strict or Loose Form.
In the early stages, a small business/start-up usually commences work from a home office. However, as the business expands, they eventually need to lease commercial property or rent coworking/shared office space than a traditional office.
If you decide to rent a commercial property, you will sign a lease agreement with the landlord. A lease agreement governs the use of the rented property for commercial purposes.
The important things to watch out for in a lease agreement are:
A coworking space is rented through a license to occupy i.e. it only gives you permission to use the property. It does not need a traditional lease agreement as in the case of renting a commercial property. It is more popular amongst small businesses and start ups for its lower rental prices and flexibility.
Can’t wait to start renting a coworking space? Check out a full blog on 5 things to consider before renting a coworking space. Read more at: https://docpro.com/blog/5-things-to-consider-before-renting-a-coworking-space
Lease of commercial property with options on rent free period and early termination. A lease is generally over 3 years and in the form of a deed. This is drafted in neutral form
Licence giving the licensee the right to occupy the commercial property for a defined length of time. A licensee has only a personal interest and this interest can be revoked by the landowner at any time. This is a shared office arrangement drafted in neutral form.
General Data Protection Regulation (“GDPR”) is a complex and strict privacy law drafted and passed by the European Union. As a business, you are responsible to comply with the GDPR if you are collecting or processing data related to people living in the European Union. Any non-compliance with the GDPR policy can result in heavy penalties.
If you deal in global markets and the GDPR policy applies to you, check out our complete guide to GDPR for small businesses: https://docpro.com/blog/a-guide-to-the-7-principles-of-gdpr-for-small-businesses-and-consumers
Please note that this is a general guide on the most common contracts a business will need. This does not constitute legal advice. As each business, may be different, you may want to speak to your local lawyer.
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