There are many components involved in starting a business. From the initial conception and planning to seeing a business dream become a reality, each step of the process requires strategic business decisions. Inevitably, legal intervention is required in the form of permits, forms and documents.
To establish a solid foundation for your business, there are three important agreements and contracts of which you must employ. Operating agreements, employment agreements, and non-disclosure agreements are essential for startup companies. Such legal documents are designed to protect business owners, their employees, and the assets and creative collateral of the company.
Operating or Shareholder’s Agreement
If you are going into business with one or several partners, it is imperative to draft an operating or shareholder’s agreement. This document provides a legal substructure for any forthcoming financial and functional decisions while clearly outlining each partner’s role. Often considered the backbone of a company, an agreement also develops the framework for a business’s general operations as defined by the proprietors. Once the agreement is signed, it becomes a legally binding contract and protects the company if any party breaches the agreements.
When discussing the contents of an operating agreement, every business’s will be different; there is no clear outline or template. Each document is tailored to the specific needs of a company. However, a few components – such as the rights, responsibilities, and financial commitments of each partner – should be defined. Above all, having an operating agreement in place at the beginning of a business venture is a smart way to manage expectations and avoid potential conflicts at the uppermost management level.
When you’re ready to expand your team and begin hiring employees, an employment agreement or contract is a way to ensure all parties involved are on the same page. Not only will it solidify the relationship between management and new hires, but it will also clearly set expectations and obligations of both the employee and the company as a whole.
Typically, an employment agreement contains salary amount, benefits and general job duties. It outlines exactly what a new hire can expect and what is expected of them. Overall, employment agreements complete the onboarding process to make everything official.
As is the case with the operation agreement, an employment agreement will be different from business to business. In fact, it may even be different from employee to employee. Although employment agreements are not mandatory, you may want to draft a document for a specific employee, perhaps to dissuade them from leaving the company too soon. Whatever you feel is necessary for an employee to agree to will be written in this document.
Non-Solicitation and Non-Disclosure Agreement
To protect your company’s most confidential information, a non-disclosure agreement is an important document for any startup or established business. This document, once signed, legally ensures that any secure information is not to be shared with others. Certain items discussed in an NDA include new product information, client contact information, or sales and marketing plans. Regardless of subject matter, a non-disclosure agreement requires participants to not divulge or release any information.
The goodwill of your customers and clients developed over time is also a valuable asset, which can be lost to employees who move to competitors. Unfortunately, the law related to these agreements changes constantly. A well-crafted non-solicitation agreement -- designed to be enforceable under current law -- can offer significant protection to your business.
Mainly, such agreements prevent business matters from leaking to competitors, but also re-establishes trust within the business. If for whatever reason that trust is broken, the contract is legally enforceable. If necessary, the injured party can take action against any breaches, or even sue for damages. In short, NDAs confirm that confidential information stays confidential to protect your assets, and non-solicitation agreements confirm that the goodwill you have developed with your customers and clients stays with you.
No matter the document, the smartest decision you can make for your business would be to have a lawyer review and proof the contract. Business owners and entrepreneurs – however savvy and ambitious they may be – are not as well versed in legalese. An attorney will ensure the contract is legally sound to protect you and your company.
At Trevett Cristo, our trusted and knowledgeable attorneys will work with you to analyze and create your contracts to start your business venture off on the right foot. Before you sign on the dotted line, contact us today.