A business cannot function effectively without proper contracts in place to safeguard them. You need a set of legal documents in order to buy and sell goods, interact with other people, improve efficiency, manage, and run your business.
Legally binding agreements are important for keeping businesses operating effectively. Business contracts provide you with the essential legal protections you need for any operation. In addition to lowering risk, contracts also protect you and your company by outlining your obligations and rights in each agreement.
There are some documents that you as a business owner will certainly come across and it’s important to understand how they work and why you need them.
Here’s a list of 10 such legal documents that you must know about -
1. Confidentiality Agreement
It is only natural, in the early stages of the exhilaration that comes with starting a new venture, to want to discuss your goals for the company with the people you care about the most. It is important to keep in mind, however, that once a notion is said out, it can never be stifled again.
If you are working with potential business partners and will be sharing your business ideas with them, you should have them sign a Confidentiality Agreement (also known as a Non-disclosure Agreement, or NDA), in which they agree not to disclose your confidential information to a third party and may only use it for the purpose for which it was intended.
Your organisation’s employees and partners may be required under a non-disclosure agreement to keep any sensitive information secret to avoid legal repercussions. Every business has to have a confidentiality agreement in place.
Before exposing any sensitive information, staff should first adopt written confidentiality guidelines to reduce the likelihood of misconceptions over the scope of information sharing.
Anyone determined to have violated the NDA will be obliged to pay compensation to your company to make up for the monetary damages it has sustained. Because of this, it is considered by the legal system to be a very significant piece of paper for any firm.
2. Shareholders’ Agreement or Partnership Agreement
An agreement between the owners of a business is known as a shareholders' agreement. This agreement details the rights and obligations of each shareholder in the organisation. This agreement provides an incentive for the parties to continue their previous cooperative efforts and to keep the company going over the long term.
This agreement has to be very clear about who the shareholders are, what their obligations are, and what will take place if and when they decide to sell their shares and quit the firm.
If you wish to structure your company as a partnership, it is very necessary to have a Partnership Agreement that is legally enforceable and outlines the processes for how decisions are made as well as how assets and liabilities are distributed among the partners. You may need to write a lot of legal paperwork to have your partnership established.
Your company might face irreparable harm in the event of a future legal dispute if its participants do not have a complete and thorough grasp of the partnership and shareholder agreement, as well as a consensus about its terms.
3. Employment Contract
It is essential to start documenting the working connection as soon as possible. Because it outlines the tasks and responsibilities of each party, an employment agreement may help reduce the likelihood of disagreements arising between the parties.
To name just a few of the fundamentals that must be included in an employment contract, we have the following: a termination clause, vacation time, sick leave, paid time off, and a probationary period.
By describing the employee's and the employer's respective rights and obligations, employment agreements facilitate the settlement of conflicts between the two parties. The employment contract is an essential part of the paperwork that the organisation keeps.
4. Memorandum of Understanding
A Memorandum of Understanding, or MOU for short. It is an official record of the contacts that your company has had with its vendors, possible business partners, and any other parties interested in the matter.
During the Intention Phase, this tool is used to assist in getting everyone on the same page and moving the project closer to completion.
The parties to the MOU need to have a comprehensive road map to go from the "Intention" stage to the "Contract" stage. For the parties to get through the "Intent Phase" of their relationship and into the "Memorandum of Understanding" phase.
5. Non-Compete Agreement
A clause in a contract between an employer and employee or contractor that prohibits the worker from joining a competitor of the employer or starting their own business in direct competition with the employer after the worker's or contractor's employment with the employer has ended is an example of a covenant not to compete. This clause is common in the construction industry. The length of the competition, the dimensions of the playing area, and even the geographic positioning of the many sites are all examples of aspects that might be subject to regulation.
Employees who have signed non-compete agreements reduce the likelihood that they would disclose the company's trade secrets, which may include customer lists and other important resources. It enables enterprises to have a protectable interest in their workers' labour as well as in the knowledge and "inside information" that their employees possess.
The worker is put in an awkward position by non-compete agreements. Experts agree that a provision like this would stifle an employee's autonomy by limiting his or her ability to determine when and how to put an idea into action of their own will. This is the consensus among experts.
The adoption of non-compete provisions, often known as non-compete agreements, may assist firms in retaining key personnel, protecting confidential information such as trade secrets and intellectual property, and reducing the likelihood of unfair competition.
Website providers may be able to satisfy the legal or regulatory obligations connected to data collection and prevent future difficulties concerning data privacy breaches if they identify the quantity of personal data that will be used and protected. The terms of service for a website are what create the contractual duties that exist between the owner of the website and its users.
It is common practice for users to indicate their acceptance of the terms of service by checking a box or by continuing to make use of the website.
Even if you don't actively participate in the purchase and selling of products or services over the internet, you still need these two papers.
7. Purchase Order, Invoice, and First Payment Reminder Letter
Cash flow is one of the most important factors determining the success of any organisation. Before starting to do business with a new client, you must first create a purchase order in which you specify the conditions of payment to be used.
When pursuing past-due payments, it will be essential to have invoices sent out as quickly as possible and to maintain track of any information that is relevant to the matter. Check to be that you are using appropriate payment methods and that you are aware of the procedures to follow if a payment is late. Sending a First Payment Reminder Letter to the client is something you need to do if the customer has not paid within the given amount of time. It is possible to get customers to pay off their past-due accounts, which will be beneficial to the cash flow of your business.
8. Memorandum of understanding
A memorandum of understanding (or "MOU") serves as a compromise between an official contract and an oral agreement. Documentation is kept for every significant encounter that takes place with clients, prospective business partners, and other connections for your company. You should not put any legal weight on memorandums of understanding (MOUs), even though they are beneficial for laying out in writing the requirements of a project or partnership between parties.
Any company that has a website need to make public its terms of service regardless of whether or not doing so is mandated by law. If your website contains any mistakes, whether they are your writing or the work of other persons to whom you connect, the information included on these pages may be able to assist you to avoid getting into legal difficulties. In addition, your Terms of Service should explain the activities—such as posting comments or submitting content—that users may and cannot engage in while using your website.
Apostilles are certifications that are used to establish the validity of public documents (such as articles of incorporation) so that they may be used in other nations that are signatories to the Hague Convention. Documents with an apostille may only be used for legal purposes in nations that are signatories to the Hague Convention.
It is quite unlikely that any of these papers will need you to start at the very beginning. You can easily find free templates for these contracts that you can immediately put to use.
These legal papers are more than just a mere formality; rather, they are necessary to fulfil the standards that have been established by your state. You are constructing the appropriate structure for your company by giving thoughtful consideration to the myriad of information included in each document.