The year 2020 was hard for many small businesses. As the economy continues to show signs of progress and improvement, 2021 presents a myriad of opportunities to set your small business up for success going forward. While there are some obvious needs for your business in 2021, such as marketing your business and boosting your sales revenue, don’t forget to protect your business legally with essential business contracts.
If you don’t already have business contracts in place, now is the perfect time to start. No matter what industry you’re in or what type of business you own, there are various types of business contracts that most businesses need. Here is more information on the different types of business contracts and how to get business contract templates.
What Is a Business Contract and What Does it Do?
A business contract is a legally binding, good faith agreement between two parties concerning the buying and selling of goods and services. A business contract protects your business and your business partners while providing clarity around the agreements you have made. By clearly defining these relationships, expectations and obligations in a contract, all parties will be protected in the event of a disagreement or other potential legal dispute. Business contracts are indispensable to your business.
In order to be legally binding, a business contract must contain the following elements:
Offer: one party makes an offer to another party
Acceptance: the party to whom the offer was made accepts the offer
Consideration: defines who is “paying” what; this could be monetary or non-monetary such as knowledge in the field or expertise on a subject
Competency: both parties must be competent and capable of entering a legally binding contract
Generally speaking, a business contract should be written in order to be enforceable; each state has different laws regarding whether or not verbal contracts are valid. Regardless of whether verbal contracts are legal in your state, consider defaulting to written contracts in order to maximize your protection in the event of default or other legal issues.
While your business can certainly opt to write its own business contracts from scratch, utilizing a business contract template is an easy and convenient way to begin. Most business contract templates are purchased in a generic format and then updated with your business’s specific details. Incfile offers a package of lawyer-approved business contract templates that can cover your bases without needing to be a lawyer yourself.
One bad contract can set your business back thousands of dollars or more; you owe it to yourself to investigate the best solution for your company and make sure that essential business contracts are in place to protect you and your business.
15 Essential Business Contracts
Following are the 15 most essential business contracts that your small business might need in 2021. Take a moment to review this list and consider which of these contracts you have in place already with your business partners. For any contracts that you might be missing, consider where and how you should implement them in your small business.
Operating Agreement: This lays out the ownership, rights and responsibilities of LLC (limited liability company) members and outlines the framework of the LLC business. An operating agreement details everything from how financial decisions are made to the rules and regulations of the LLC. This is a key document for an LLC since it drives financial and functional decision-making.
Non-Compete Agreement: This contract restricts the employee from engaging in business that competes with the employer’s business. A non-compete agreement protects the business interests of the employer, but to a reasonable extent with regard to time, geography, etc. A non-compete is commonly presented as a condition of employment and continues through a reasonably defined time period following termination.
Non-Disclosure Agreement (NDA): An NDA means business-specific information and/or trade secrets cannot be disclosed to others. Anytime confidential information is involved, an NDA should be utilized to protect all shared information between parties. An NDA can help all parties feel more comfortable and will actually lend a layer of trust to negotiations.
Independent Contractor Agreement: This spells out the terms of agreement between a contractor and a business.
Employment Agreement: This is used when hiring a new employee to define salary, benefits, hours, etc.
Employment Offer Letter: This presents the offer of employment, including the basic terms of the position being offered.
Intellectual Property Assignment Agreement: This agreement transfers ownership of intellectual property; often used to transfer rights from the creator to a company and can be used as part of a larger asset sale or purchase.
Release of Liability: One party agrees not to sue the other party who could be potentially liable.
Terms of Service: This contract governs the users of your website or service; it allows the business to restrict or terminate access if the terms are violated. Terms of service can have varying levels of legality, from requiring a user to abide by the terms set forth to merely being a disclaimer regarding use of a website, software, etc.
Sales Agreement: A contract that obligates the seller to sell and the buyer to buy a good or service.
Consulting Agreement: This describes the working relationship between the consultant and the client/business they are providing a service to.
Partnership Agreement: This agreement lays out the relationship between business partners and dictates how the business is run.
Cease & Desist Letter (Trademark Infringement): This type of letter demands that another party stop using a business’s trademarked material without express permission from the trademark owner. Cease and desist letters for trademark infringement are fairly common, and probably one of the contracts you hear about the most in the news. A common trademark infringement cause occurs with business names and/or domain names being too similar to another business’s or creating confusion in the market between the two. Your trademark is part of your business’s identity and intellectual property, so protecting it is vital.
Employee Termination Letter: This is a formal notice advising an employee that they are being dismissed. A termination letter will often include the reason for termination, as well as any severance package being offered (benefits, salary, etc.) and the timeframe.
Not every business needs every one of these essential contracts; some contracts are more useful for certain industries, types of companies or particular business situations. But no matter what business you own, you should think carefully about what kinds of business contracts you might need, what risks you might be exposed to in the course of doing business and how you can revamp your existing contract language to be more precise and protective of your rights.
Good business contracts ultimately protect the interests of buyers and sellers. Having a well-written contract is part of managing your risks, protecting your business income and doing business the right way to reassure and protect your customers as well.
Incfile offers access to a library of business contract templates, available for free with a Platinum business formation package or for just $150 with the Silver or Gold package.
Ben Gran is a freelance writer from Des Moines, Iowa. Ben has written for Fortune 500 companies, the Governor of Iowa (who now serves as U.S. Secretary of Agriculture), the U.S. Secretary of the Navy, and many corporate clients. He writes about entrepreneurship, technology, food and other areas of great personal interest.