When starting a new business, putting the right legal agreements in place is crucial for protecting your assets and relationships. Yet far too many new business owners put off—or even entirely overlook—creating these vital documents. You might not even know which agreements you need.
The following 4 agreements are among the most essential legal documents for just about every business. If your business is missing any of these foundational documents, or you need the agreements you already have reviewed, contact us, your Personal Family Lawyer® with business planning expertise right away.
1. Business entity agreements
One of the very first decisions you will make as a business owner is how to legally structure your business. To minimize your personal liability and maximize tax savings, we often advise our clients to set up their business as a limited liability company (LLC) or a corporation. In either case, you’ll need to draft the proper business entity agreement to stipulate how your business entity will be governed and run.
For an LLC, this is in the form of an operating agreement, while corporations require corporate bylaws. Both legal documents define the rights and responsibilities of your company’s owners: LLC owners are known as “members,” while corporation owners are “shareholders.”
Among other functions, these agreements establish how the company will be managed not only on a daily basis, but also in the event one owner dies, becomes incapacitated, or retires, as well as stipulating what will happen if the company fails. These agreements also outline how business communications will be handled, along with how disputes will be resolved.
Business owners often don’t take these documents seriously enough—or even bypass them entirely—because the owners are friends, and they figure they will just figure everything out as they go. But giving short shrift to these agreements is a huge mistake.
Conflicts are inevitable in any business, and even if everyone gets along, you still need to plan for events like the company’s eventual sale or dissolution, as well as incapacity, death, or retirement of an owner. For this reason, you should always consult with an experienced business lawyer like us to help you create these agreements, and never try to draft them on your own using a do-it-yourself (DIY) online document service.
As your Personal Family Lawyer® with business planning expertise, we will not only advise you on the entity structure that’s right for your business, we will also support you to create robust operating agreements or bylaws to ensure your company’s governing documents cover all of these critical areas.
2. Employment and independent contractor agreements
If you anticipate hiring employees or independent contractors, you’ll need to create comprehensive employment agreements and independent contractor agreements, and require every person who works for you to sign one—no matter how long you’ve known the person. In fact, it becomes even more important when you are hiring friends or family.
These agreements should clearly detail the terms and conditions for the working relationship, establishing metrics for success and time frames for specific goals and objectives to be achieved. Then include that information in the employment or contractor agreement, so it’s abundantly clear what the expectations for the position are for both the team member and for you.
Your employee agreements and contractor agreements should also include provisions that protect your intellectual property (IP). We often see agreements that put business owners at risk of their employees or contractors leaving and taking the company’s most valuable IP assets with them. Sometimes, they will even steal your customers, or in a worst-case scenario, you may not even own the IP you’ve paid them to create for you.
Given that your IP is one of our company’s most valuable assets, your agreements need to be prepared properly to ensure you own the full spectrum of rights related to these intangible assets. We outline how this works in the section below.
Last—but far from least, since it’s the biggest area of risk to your business—if you are hiring independent contractors, you must have an independent contractor agreement that keeps you from getting in serious hot water if a contractor you hired is actually deemed to be an employee. Before you hire anyone, be sure to work with us to get your team member contracts in place.
3. Intellectual property assignment agreements
You must ensure all intellectual property brought into your company by its founders before you open your doors, as well as any IP created by owners, employees, and contractors once the business is up and running, is owned by the company, not the individuals. Transfer of IP ownership is accomplished using intellectual property assignment agreements, and properly worded employment and independent contractor agreements.
Whether included as a clause in the employment agreement or created as a stand-alone document, these agreements “assign” the company ownership rights to all intellectual property assets—patents, trademarks, and copyrights—used by your business. These agreements are especially important when working with independent contractors. Although you typically have automatic ownership of IP produced by your employees working for you, contractors generally retain full ownership rights to their work, unless they’ve signed an agreement stating otherwise.
As your Personal Family Lawyer® with business planning expertise, we will help you create IP assignment agreements for everyone involved with your business, so you can retain total ownership and control of these valuable intangible assets.
4. Sales and service agreements
Many business owners don’t understand that client service agreements and product purchase agreements are a key part of the sales process. If this process is not smooth and integrated, you’ll breach trust and reduce your chances of making the sale.
Whether you sell products, provide professional services, or a bit of both, you should have legal agreements in place clearly laying out the rights and responsibilities of both your business and its customers/clients. These agreements detail the key elements—price, payment and credit terms, tax responsibilities, warranties, and liability limitations—for all products your company manufactures or services you offer.
When you work with us to prepare your agreements, we’ll keep our eye on your company’s overall sales process. By doing so, your agreements will enhance that process, building trust and confidence in your products and services, while boosting your bottom line.
With so much at stake, never trust generic legal documents you find online to create your company’s agreements. Always consult with an experienced lawyer like us to ensure these vital documents are properly created and maintained.
Whether you need new agreements created or want us to review agreements you already have—even those drafted by another lawyer—meet with us, your Personal Family Lawyer® with business planning expertise. We will support you to not only create clear concise agreements, but also implement an agreement process that will allow you to more effectively navigate the inevitable changes that take place in every relationship, while dealing with conflict in a way that’s both healthy and productive. Call us today to learn more.
This article is a service of a Personal Family Lawyer®. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule.
Proper estate planning can keep your family out of conflict, out of court, and out of the public eye. If you’re ready to create a comprehensive estate plan, contact us to schedule your Family Wealth Planning Session. Even if you already have a plan in place, we will review it and help you bring it up to date to avoid heartache for your family. Schedule online today.