Essential Contracts: An Overview

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Right so you’ve set up a business. Great! HOWEVER, don’t pat yourself on the back just yet. You need to ensure that you are legally ready to actually start FUNCTIONING as a business. So what am I talking about? I’m talking about those ESSENTIAL CONTRACTS that you should have READY at your fingertips so that you don’t a) look like an amateur (even though you may actually be an amateur) b) fall prey to the lawyers for the other side (if they present you with their standard contracts first, they MAY get the upper hand…depends on whether you’re legally smart or not) or C) miss out on fantastic opportunities because you don’t have the necessary documents ready and rearing to go.

There are many standard contracts a company should have depending on the industry within which the company operates. However here is a list of contracts that are applicable to all industries.

1. Shareholder Agreements

In the UK, if you are setting up a limited company, you will need a Shareholder Agreement. This contract regulates the dealings between the shareholders of the company. It sets out who owns what and who can vote and make decisions on what. It also sets out what particular shareholders cannot do. It effectively contains the framework for operating the company. This document should be drafted and agreed by all shareholders of a company at the outset. NEVER assume that just because you are friends or respectable members of society that things will not, one day, get ugly (this is business we’re talking about). A shareholder agreement protects every one.

2. Investor Agreements

Money, money, money…MONEY! If somebody is investing or loaning money to your company they will want to see the terms written down….SIMPLE. If you don’t have a standard form of this document ready for negotiation, you could run the risk of not being taken seriously and missing out on a great opportunity to gain capital for your business. An investor will want to know specific things and they will want to see these specific things neatly set out in concrete. What shares do they get? What is the value of those shares? Will those shares get diluted if more money comes in? What control do they get? What are the procedures for running the company? What is an exit for the investor if they want out? Setting these terms out clearly also protects YOU.

3. Website Terms and Conditions

Do you have a website? Of course you DO. You’re not living in the stone age BUT did you know that you cannot just have a website, you need a collection of documents covering the way that the website is run. Consumers/clients/customers need to see your policies on data, privacy, cookies and cancellation. Make sure you draft Terms and Conditions that are bespoke to your company. DO NOT copy and paste from another company’s Terms and Conditions – something in the small print WILL come back to bite you later. Instead, think about what terms you need in place that are relevant to what you offer and to how you run your business for example “this company operates on a 12 day cooling off period, if you change your mind within 12 days of ordering, we will cancel the contract, no strings attached” or “bookings are only confirmed upon receipt of a confirmation email from our head office”.

4. Non-Disclosure Agreements

Your business is your secret. Everything from your trademarks, patents, copyright, software, recipes, formulas, processes, financial information and so forth is your business IDENTITY. Don’t make it easy for people to steal your identity. This is what makes you unique – McDonalds, Apple, Nintendo! Before prospective investors, trade partners and purchasers will deal with you, they often need to know more about you – a Non-Disclosure Agreement offers you some protection in relation to the information that you disclose. It is a deterrent against breach of confidentiality by the other party. If they breach it, you can take them to court and sue them for virtually all damage ensuing from that breach…the price to pay could be very costly, consequently, they won’t want to breach it and your business identity is SAFE.

5. Employment or Consulting Agreements

If you have employees or consultants, you need a document that clearly sets out your relationship. There are many considerations that you as an employer will need to consider and set out clearly in line with the law. For example the process of terminating the contract, dealing with employee data, dealing with disciplinary matters, and (currently at the fore front in the UK) employee pension rights. Additionally, considerations such as wages, bonuses, working hours, holiday, sick pay, shares etc. all need to be addressed and codified somewhere clearly. This is where you really need a lawyer. There are some benefits to engaging contractors over employees (basically that you are not responsible for them) BUT just because you label someone a contractor does NOT mean that they are LEGALLY a CONTRACTOR. If they are working full time and only for you, tax and the law may classify them as an employee. So again YOU NEED A LAWYER HERE.

So there you have it. This is NOT a comprehensive list BUT it is a very good start. If you operate in another jurisdiction, such as the USA or Singapore or Dubai, the above themes and considerations are pretty universal save for any legal particulars. So go and put your house in order. You can actually buy most of the templates to the above agreements online HOWEVER whilst you can certainly make a start on them ALWAYS get a lawyer to give them at LEAST the once over, remember these documents are ESSENTIAL so you kind of want to get them right.

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