15 Nov 2022
16 Oct 2020
Entrepreneurs make business growth and profit maximization their top priority. While it is necessary but even more crucial is to run your business with proper legal documentation from the start.
Most small business owners/ start-up founders are unaware of which contracts their businesses need to protect run a business legally. So, I researched the key legal documents you need to start your business. Let’s see what these documents are and why you need them:
If you are running a small business/start-up and do not know how to draft business contracts, do not worry, here is a list of the 10 essential business contracts templates you need to kick-start and run your small business:
If you are starting a business with another person, you need to enter 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:
Shareholder funding/contributions i.e. how much the shareholders have to contribute initially and in the future.
Whether the Shareholders own equal shares or unequal shares
Duties and Responsibilities of each shareholder
Procedure for issuing new shares/ rights to buy additional shares
Protections for Minority Shareholders
Exit strategy if a shareholder wants to exit or terminate its interest in the Company
Dispute Resolution Mechanism
When starting a business with a limited budget/resources, owners often make the mistake of running the business without setting up a proper business structure. As such, when the business grows and starts to generate revenue, issues arise amongst the co-founders and can lead to business failure.
Without a Shareholder Agreement,
you will expose the business to huge risk 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 a company and investors who want 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:
How much should the investor pay and how many shares is he/she entitled to?
After a transfer of shares, would the rights and obligations of shareholders remain?
How can the risk of investing in an unprofitable company be mitigated?
How can the owners of a company gain trust from the investors?
Read more here.
As your business grows, you will need funding to expand and grow in new areas. You'll need to execute an Investment Agreement to 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 disputes.
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.
An NDA prevents unauthorized disclosure of confidential information to a third party and restricts the use of disclosed information to the purpose specified in the NDA. The obligations can be mutual or one-sided depending on whether the disclosure applies to just you or both parties.
A good NDA template must cover the following key provisions:
Identification of the parties as disclosing party/receiving party
What information is confidential?
What information is not confidential?
In what circumstances, can the confidential information be disclosed to a third party?
What is the intended use of confidential information?
How will the confidential information be handled? Whether it will be returned/destroyed?
Confidentiality obligations of the parties
Consequences of breach of the NDA and the remedies available to you
Term of NDA
At various stages of conducting business with other parties, you will have to share information on intellectual property, private equity investments, business proposals, marketing strategies, customer lists, trade secrets, etc. Since this 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 with a protective framework to freely share confidential data and develop better business relationships with your clients.
NDA provides 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 the 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 to 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 remuneration.
A Service Agreement must include:
Scope of Services to set in stone the expectation of the parties
Payment Terms (including late payment fees)
Responsibilities of both parties
Limitation of Liability in case of the third party claim
Term of the Agreement
Rights of the parties to terminate the Agreement
Dispute Resolution Mechanism
If you are in the business of providing a service, you need to execute a service agreement to define the terms of your relationship with clients, so you are both on the same page and do not clash. It also helps you to define your responsibilities as a service provider and limits your liability in the event of a third-party claim.
Additionally, as the business expands, consistent use of the Service Agreement with the clients will make the contract management process more efficient.
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.
An employment contract is a legally binding agreement between an employer and employee that outlines the terms of employment.
It includes the following key provisions:
Particulars of the Job (Job Position, department of work)
Remuneration and benefits
Non-Compete Clause (restricting your employee to work for your competitors)
Dispute Resolution Mechanism
The employment contract is beneficial to both the employer and employee as it ensures that both parties clearly understand the scope of employment. This has the effect of minimizes the chance of future disputes. The employee will be aware of what is expected in terms of performance standards or unacceptable behaviours at work. If the roles involve handling sensitive information, the confidentiality clause in the contract will ensure the employee does 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 the option for Junior Employee to purchase share options. This is drafted in Neutral form.
An independent contractor agreement is a written agreement that establishes the business arrangement between the business owner and the contractor.
An Independent Contractor Agreement must include:
Scope of work
What will be the role and responsibilities of both the parties
What will be your insurance obligations
Expressly spell out the independent contractor status (i.e. the contractor will not be deemed to be an employee/agent of your company at any time)
The main purpose behind hiring independent contractors is to avoid forming a legal relationship between employer and employee/agency/partnership with the other party.
Independent contractors can be hired on a whim to execute certain projects at various stages of business. They may be a more appropriate option for start-ups as it is 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 parties to enter a business transaction. It is followed by a formal binding agreement between the parties.
MoU is a common document used among small businesses and start-ups for business transactions such as joint ventures/sale of a business. It must include:
Description of the business transaction;
Any contingencies that must be met by either party
Restrictive Covenants (e.g. non-disclosure of confidential information);
Explicitly states that the MoU is non-binding for both parties;
End date for the MoU
An MoU is important because it outlines the proposed business arrangement in clear terms, which will provide you with clarity on what to expect from the business relationship. It will enable you to make an informed decision before you decide to enter 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 whereby two or more businesses collaborate to pool their resources on new business activity.
Nature of the joint venture, i.e. describe each party’s contribution to the joint venture and what goals it plans to achieve
Revenue Percentage allocated to each party
Any Restrictive covenants (e.g. using brand name, trademarks, etc.
Parties individual rights after the end of the agreement (e.g. any continuing liabilities, future income, IP rights)
As a small business/start-up, you aren’t equipped with all resources and expertise (such as funding, distribution services, technology, marketing expertise, etc.) you need to fuel your innovative business idea. As such, by creating a joint venture through collaboration with other companies and combining their resources with yours, you will be able to meet your goals more easily.
There are two ways of creating a Joint venture:
Via Separate entity wherein you collaborate with another party to achieve a goal, but both of you continue to be separate entities. This created venture dissolves once the goals are met; or
Via partnership where you join hands with another business, and both of you combine to form one entity, i.e. both the parties become the co-owners of the joint venture.
Need more information on whether you should have a joint venture or partnership, check out our blog here.
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, small businesses/start-ups usually do work from a home office. However, as the business expands, they will have to lease commercial property or rent coworking/shared office space.
If you decide to rent a commercial property, you need to 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:
How much is the base rent, and are there any additional charges for parking fees, utility, and insurance.
How much is the Security Deposit?
How long is the lease for?
What is your responsibility for major structural expenditures?
The types of improvements and upgrades you can make
How much notice do you need to give before terminating a lease?
A coworking space is rented through a license to occupy, i.e., it only permits you to use the property. It does not need a traditional lease agreement, which renting a commercial property would require. Coworking spaces are therefore more popular amongst small businesses and start-ups for their lower rental prices and flexibility.
How much is the rent?
How long is the rental period?
What are the resources and services that will be provided (such as WiFi, printer, locker, power back up, conference rooms, etc.)
Terms and conditions (strict/flexible, free trial)
Networking opportunities, i.e. who are the other tenants of the coworking space.
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.
License 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.
Type of Personal Data collected;
Purpose of collecting Personal Data;
Procedure for data storage and security
Policies for deleting Personal Data
Customer’s right to its Personal Data (including the right to access and request update)
Terms of disclosure of Personal Data to third parties and cross-border data transfer, if applicable
Consent to collect information about customer’s IP addresses and Cookies.
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 for complying with the GDPR if you are collecting or processing data concerning 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
It is crucial to have templates of common business contracts. However, most business owners do not know where to obtain templates!
The most obvious way is to instruct a law firm to prepare business contract templates for you. However, this costs upwards of tens of thousands of dollars and many start-ups do not have the financial resources for this. For businesses that would like to save on time and costs or without a legal budget, an alternative is to create business documents through DocPro. You can tailor them to your needs and simply download in Word format when you’re done.
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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