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Should This Be in Writing? A business owner’s guide to business contracts

by Siobhan Donovan, Cox & Palmer

As a business owner, you may have thought, “Should this be in writing . . .?” Often, the answer is yes. Having effective business contracts in place can not only make running your business easier but also help to avoid future conflicts.

While there is no one-size-fits-all approach to business contracts, the following is a sampling of business contracts that every business owner should know about.

Employment contracts

Hiring the right people for your team is an exciting part of growing your business. Amid this excitement, however, be sure not to overlook the need for employment contracts. These contracts outline the relationship between the business and the employee and clearly set out the expectations and obligations of all parties.

The contents of an employment contract will differ depending on the business (and may even differ among employees within the same business), but typically they will contain provisions pertaining to the employee’s job duties and compensation, any benefits the employee will receive, and what happens in the event of a dispute or termination. The employment contract may also include non-disclosure, non-solicitation, and non-competition provisions.

Preparing an employment contract may seem like a daunting (and perhaps unnecessary) expense in the early stages of business; however, it is important to remember that employment contracts are not only for the benefit of the employee. Employment contracts can reduce the likelihood of future legal action, thus saving you money in the long run.

Confidentiality agreement/non-disclosure agreement

Employment contracts are not the only business contracts that contemplate non-disclosure. Sometimes, business owners require entire agreements solely to deal with confidentiality and non-disclosure. These are referred to as Non-Disclosure Agreements (NDAs).

An NDA is an important document if you want to protect the confidential information of your business. It legally ensures that any secure information is not to be shared with others. If an NDA is breached, your business can take legal action to prevent further breaches or recover damages. Deciding when and where to use an NDA will depend on your business and the information you are trying to protect. Generally, anyone who interacts with or could have knowledge of the confidential information you are trying to protect should sign an NDA.

In an NDA, you will want to include things such as who is bound by the NDA, whether the NDA is one way or mutual, the scope of confidential information covered by the NDA, and the term or duration of the NDA.

Commercial lease

Moving your business into a physical location is another exciting aspect of growth that carries with it practical and legal considerations. If your business is operating out of a physical location, you will need a commercial lease.

A commercial lease is a binding agreement between landlord and tenant that outlines the responsibilities and obligations of both parties. Typically, a commercial lease includes terms such as the type of property being leased, square footage of the leased space, length of the tenancy, renewal procedures, and rental amount.

When negotiating or entering into a commercial lease agreement, it is vital to look for things such as whether there are additional charges on top of base rent (for parking, utilities, insurance, etc.), the types of improvements and upgrades you can make, and how much notice is needed to terminate the lease.

Unanimous shareholder agreement

If you are entering into a business venture with one or more partners and you are planning to incorporate, a Unanimous Shareholder Agreement (USA) is a crucial tool in managing expectations and avoiding conflicts. Having a USA in place at the beginning of a business venture allows you to create solutions to conflicts before they arise; think of it as planning for the worst, while hoping for the best.

As the name implies, a USA must be executed by all shareholders of a corporation. The corporation must also be a party to the agreement.

Every business will have different requirements for their USA; however, generally a USA will cover the key areas of decision making, dispute resolution, and share transfers/restrictions. Common additional provisions include a right of first refusal (where existing shareholders get a chance to match a third-party offer to buy shares), a shotgun clause (in which shareholders can establish the terms and price of their shares for buying or selling), and a piggyback clause (which applies when one shareholder sells their shares to a third party, and other shareholders are allowed to include their shares in the agreement and exit the company).

Bottom line

Having clear and enforceable business contracts in place can not only make your life easier right now, but can also save you considerable headache and financial resources down the line.

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