Running a business involves a lot of paperwork, from fairly standard contracts to highlight specialized documents that are unique to one’s industry. But no matter what industry you are in or what type of business you own, there are certain documents that most businesses need (or at least need to be aware of). If you don’t already have business contracts in place, now is the perfect time to start. So whether you’re an experienced business owner or just getting started, you should familiarize yourself with these most important of business contracts.
An operating agreement is a document used by limited liability companies to outline and customize the terms of the companies’ operations according to the specific needs of its owners. This includes all financial and functional rules, regulations, or provisions.1 It also outlines the overall structure of companies’ management and ownership. Having an operating agreement is valuable, both because it creates a sense of structure regarding the internal operations of the business and for tax/legal purposes.2
A sales contract (also called a sale of goods contract, a sales agreement, a service agreement, or a purchase agreement) is a legally binding agreement between two parties concerning the buying and selling of goods and services. It is a formal agreement that identifies the buyer, seller, goods/services provided, and any other related terms.3 Though some businesses don’t need to have a written business contract in place, 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.
Independent Contractor Agreement
An independent contractor agreement is a legally binding contract outlining the business relationship between a hiring party and an independent contractor. It should cover the scope of work, deliverables, payments, deadlines, and any other details of the job and the independent contractor relationship. The agreement might also provide guidance regarding any confidentiality requirements, insurance, and indemnification. It is functionally similar to a standard business or sales contract, though it has some differences to account for laws related to freelancers.4
An employment agreement is a legally binding document that details the rules, rights, and responsibilities for both an employer and employee in a working relationship. This typically includes matters such as work responsibilities, salary, employee benefits, performance reviews, and grounds for termination.5 An employment agreement lays out the terms and conditions involved in a new hire, ensuring that there is no confusion or uncertainty on how to proceed on any given workplace matter.
A non-disclosure agreement (or NDA) is a legal document in which a person or business asks the subject of the NDA not to share any confidential information that has been shared with them.6 NDAs can be used in a variety of different situations, though they are most often used during the employment process. They also tend to be signed during the start of a potential joint business venture, when two parties are sharing information about their businesses and they want to be sure that the information remains protected, even if the joint venture doesn’t happen.
A Non-Compete Agreement is a legal document in which a person or business asks the subject of the non-compete (typically an employee or potential employee) to not compete with the business in various ways. This typically involves restricting the activities of an employee after they leave a company.7 For instance, an employer will often require that an employee cannot reveal any trade secrets that they learned during their employment. Other restrictions include preventing the former employee from opening a competing business within a certain geographic zone for a period of time or even forbidding them from working with their former employer’s direct competitors at all.8
It is important for entrepreneurs to be aware of these documents in order to ensure they are well thought out and well-drafted. Be sure to do your research, double-check any business documents you create and work closely with a legal professional to get the best results!
1. U.S. Small Business Administration. (n.d.). Basic Information About Operating Agreements. U.S. Small Business Administration. https://www.sba.gov/blog/basic-information-about-operating-agreements.
2. U.S. Small Business Administration. (n.d.). Basic Information About Operating Agreements. U.S. Small Business Administration. https://www.sba.gov/blog/basic-information-about-operating-agreements.
3. ContractsCounsel. (n.d.). Sales Contract. Everything You Need to Know. https://www.contractscounsel.com/t/us/sales-contract.
4. ContractsCounsel. (n.d.). Independent Contractor Agreement. ContractsCounsel. https://www.contractscounsel.com/t/us/independent-contractor-agreement.
5. O’Connell, B. (2019, May 28). What is an employment agreement? TheStreet. https://www.thestreet.com/personal-finance/what-is-an-employment-agreement-14971099.
6. Harroch, R. (2016, March 10). The key elements of non-disclosure agreements. Forbes. https://www.forbes.com/sites/allbusiness/2016/03/10/the-key-elements-of-non-disclosure-agreements/.
7. Kenton, W. (2021, February 16). Non-Compete agreements: What you need to know. Investopedia. https://www.investopedia.com/terms/n/noncompete-agreement.asp.
8. Kenton, W.