That’s it! You’ve finally set up a company and your dream of running your own business is finally being realised… but before you get carried away don’t let the dream turn into a nightmare by not having the right contracts in place to protect it from the outset. Here’s the LawBite guide to the seven legal documents which are extremely important.
- Non-disclosure agreement
Your ideas, copyrights, patents, software and financial information are your private DNA- they make you unique and could help deliver a unique value for you and make your business a roaring success. But they could be replicated by someone else if you do not keep them safe. Other people like trade partners and purchasers often need to find out something more about you before they will deal with you – an NDA offers you some protection in relation to the information you disclose. You may not ever want to go through a court case to enforce it, but having a signed NDA is an expression of intent by both parties and a deterrent against disclosure of your confidential information. They can come in the form of a one-way NDA when just one person is disclosing information or a mutual-NDA where both parties are.
- Shareholder Agreement
This is assuming you’ve set up a limited company. In this case, you really do need a shareholder agreement. This outlines and regulates the arrangements between you and the other shareholders in the business. It is essential that you not only agree but write down who owns the shares, and in what amounts.
You also need to set out a framework how the company is operated; who can make decisions and how they will be made. It’s the sad truth that you shouldn’t assume because everything is okay at the beginning, it will all be plain sailing throughout because disputes do arise. How many bands have got into arguments when they split up, because there wasn’t an agreement saying who owned what? Remember how many drawn-out squabbles there have been among songwriters who didn’t agree on the splits between them for that catchy song they wrote? Precisely.
- Investor Agreements
If someone invests in or loans money to your business they will want to see the terms on which they are giving it formally written down. Here you must write down how many shares they get, what type they are and what their value is. Further still, will they get diluted if more money comes in? What are the procedures for running the company and its exit? How much control will you be giving them? If you don’t pay attention to these details they will come back and bite you later.
- Website Terms and Conditions
If your business has a website, you need a collection of documents covering the way that the website is run. Consumers need to see these. Sometimes there are legal reasons, as with your policies on Data, or privacy, Cookies or cancellation policy. Sometimes it’s just good to set an expectation as to how you are going to behave and how you expect your customers to behave. It won’t necessarily work for you to simply copy and paste another website’s T’s and C’s, as there may be certain laws you must adhere to which aren’t included.
- Software agreement
If you have software developers who are helping you to realise your dream, write your agreements down. People say that software developers are the new builders. It is certainly the case that confusion and frustration can break out on all sides when there is no formal contract in place. What’s the price? When will it be paid? What are the development milestones? Who will own the software? Who will deal with bugs, changes and maintenance and at what cost? Your software may be a core component of your business – so it’s worth getting the paperwork right.
- Employment or consulting agreements
Do you have people working with you on your business? You need to write down the way that you are working with them. Employees now have a host of potential legal protections, e.g. in relation to process around termination, their data, disciplinary matters, and their pension rights. So you need to address that and other obligations in writing. Don’t assume that just because you call someone a “Consultant” in order to avoid thinking about the above then that is what they are. The law and the taxman may still class them as an employee if effectively they are working full time only for you. Apart from these considerations you just need to be clear on the terms on which people work for and with you.
- Contract partner agreements
This next one is cheating a bit because contract partner agreements can come in many guises. It might be a manufacturing agreement, distribution, e-commerce, drop ship, agency or licensing contract. Whoever you trade with you need a commercial contract that governs issues like price, payment terms, delivery standards for services and products, timetables, responsibilities, exclusivity, termination and so on. Without your customers and your cash you are nothing, so take the trouble to write it all down to give yourself some protection and peace of mind.
So those are the key 7 types of contract which all SMEs should consider and you can find all of these documents plus legal advice for a fraction of the price of a high-street lawyer on the LawBite platform.
Clive Rich- Founder/Chairman LawBite