In this article, I summarize 10 key contracts for small and growing businesses. These contracts need to be well thought out and well drafted and can be crucial to the success of a business.
Sample forms can be found in the Forms and Agreements section of AllBusiness.com.
Employment Offer Letters
One of the best ways to protect your business from legal liability and misunderstanding with an employee is to have an employment offer letter issued and sent to the prospective employee. The employee should then be required to sign it, evidencing the scope of the employment relationship between the parties.
A good employment offer letter covers the following points:
- The particular job offer
- The responsibilities of the job
- The salary and the benefits
- That the employment is “at will,” meaning the employee can quit or the employer can terminate him or her at any time
- That the employee is required to sign a Confidentiality and Invention Assignment Agreement (discussed below)
- That the letter constitutes the entire agreement of the parties, and can only be amended in the future in writing, signed by the employer and the employee
- That any disputes will be handled exclusively by confidential binding arbitration (other than certain designated types of disputes, such as those related to worker’s compensation)
Confidentiality and Invention Assignment Agreements
Employees have access to a company’s confidential information. Moreover, many businesses expect their employees to come up with ideas, products, business strategies, and inventions.
To make sure the employees keep the proprietary information of the company confidential, you should require them to sign a Confidentiality and Invention Assignment Agreement. This agreement deals with the confidentiality issue, but it can also provide that the ideas, business strategies, and other work product developed by the employee belong to the company, and not to the employee.
If you expect to have venture capitalists or other professional investors invest in your company, they will expect that you have these agreements in place for all of your employees.
If your company provides professional services as opposed to selling a product, it needs to have its own good, standard form Services Contract (which can be labeled many things, including an Agreement for Professional Services). This type of agreement lays out the terms and conditions under which you provide services and specifically spells out your responsibilities and liabilities.
Having a good contract here is important. You want to avoid misunderstandings and undue liability. Ideally, this agreement gives you flexibility in completing the services, lists the fees for the job (and additional fees if you encounter unforeseen circumstances), and sets limitations on your liability (such as limiting that liability to the amount of the services fee).
Many businesses sell products, and therefore need a good Sales Contract. The Sales Contract lays out the price, terms, and conditions for the sale of goods, equipment, or other products. Of course, some businesses (like the corner grocery store) don’t need Sales Contracts, but if your products sell for significant dollars, then you likely need a Sales Contract.