Starting a business is challenging enough, but addressing your legal concerns does not have to be overwhelming. This paper focuses on the importance of legal documents in managing business affairs and the affairs of business owners throughout the business life cycle.
As much as possible, it is best to safeguard your business as soon as you can and not wait for things to worsen. Here, we look at what legal documents are needed to start a business.
Shareholders’ Agreement or Partnership Agreement
This would be the Shareholders’ agreement for an incorporated company, while for an unincorporated business, it is known as the Partnership Agreement. The shareholders’ agreement has been designed to ensure that shareholders are protected and their interests are not prejudiced.
There are several legal papers that you can create for your partnership business. The terms and conditions of a partnership/shareholders’ agreement should be clear, and all the parties involved should not disagree with it. A video transcription service can help draft a shareholders agreement for your business.
Standard confidentiality agreement
The non-disclosure agreement is one of the most important legal documents for small business enterprises. An NDA aims to prevent the dissemination of information deemed secret by the agreement to the signatories involved in the agreement. The agreement is that their information will not be disclosed or published in any way to the public domain.
This is a legal contract between two or more business partners who swear not to divulge any secret information shared while conducting business. A non-disclosure agreement (NDA) is a legal instrument that is intended to prevent the dissemination of a business’ proprietary information and data to anyone who is not permitted to receive it. It is also referred to as a ‘confidentiality agreement’ quite frequently.
What are the consequences of working without this document? The risk is that the information may leak into the public domain, which may embarrass or harm a party as a result of reduced sales, reduction in the number of clients, or the more severe case where vital information is compromised.
Employment Contract
The employment contract is another notable mention in the legal documents for starting a business. Labor law is anchored on employee contracts. These agreements are made to safeguard the interests of the employer as well as the employee. The employment contract defines the relationship between the employee and employer and, thus, eliminates potential conflict.
Therefore, employment contracts play an important role for staff and employers as they legally define your working relationship and various frameworks, expectations, and policies.
These contracts offer employees and employers a formal legal document that outlines the terms governing the working relationship and the rights, duties, and liabilities of all parties involved.
Confidentiality Agreement
During the formation of a new business venture, it is quite common and even desirable to consult with your close ones. But I will remind you that once an idea has been put out there, you cannot regain it in your possession.
If you are working with potential business partners and will share your business ideas with them, have them sign a Confidentiality Agreement (Non-disclosure Agreement or NDA), which means that the recipient cannot disclose the information to a third party and can only use it for a particular purpose.
These agreements do not allow your business partners or employees to disclose any information about your company that may be classified as confidential and proprietary information, such as the brand name, product design, and specifications.
Terms and Conditions
Your terms and conditions are also known as the website terms of use, and many companies have agreed to merge these two documents. Your terms and conditions create legal relations between you and your clients that they have to accept before ordering from you.
They include details of your company, like your name and registered address, and describe what you are selling and the terms you agree to sell them under, for example:
- The good or service you offer;
- To whom you are selling your goods and services;
- How you provide goods and services;
- Payment and delivery terms of your business;
- Your business’ return and refund policy.
Having well-defined terms and conditions can assist in determining when they have been violated, say, when a client has not paid within the agreed time as per the terms of their contract. It is also important to note that terms and conditions may prove useful in protecting your business.
For instance, they indicate when a client or a customer is eligible for a refund, thus reducing legal arguments. Another benefit of having a clear set of terms and conditions is that it is less expensive in the long haul when it comes to legal fees if there is disagreement.
Memorandum of Understanding
The Memorandum of Understanding (MoU) is a legal document for a business and covers all important discussions with your suppliers, partners, and other individuals engaged in the business.
It marks progress toward a project’s achievement and declares how various stakeholders are expected to contribute at the onset of a project. A comprehensive MoU should provide the direction by which the parties to a project will proceed in its implementation.
Non-Compete Agreement
A non-compete clause is an important element of the business legal documents. It is a contract between an employer and an employee or contractor. The employee or contractor must not take up employment with the employer’s competitors or establish a competing business once the services have been rendered.
Employers should not only be concerned with non-competition provisions but should also focus on safety issues that can be discussed with the employees during their service, besides guaranteeing that safety is a priority when it comes to the working relationship.
Restrictions to compete can be for a particular period, in a certain area of specialization, and in a given geographical area. Non-compete or non-compete clauses can assist a company in keeping its talented employees secure and sensitive information, which includes not only ideas and innovations but also clients and customers and avoiding rivalry.
Bottom Line
Establishing a good business is not just about having a good concept and working very hard to implement the idea. However, as a business person, you should always ensure that you have adequate documentation and contracts to safeguard your business.
It amazes me how little people know that even half of the small businesses out there do not bother to put the basic legal tools down at the onset. However, the need to ensure that the right documents are in place right from the beginning cannot be overemphasized if the business is to succeed.