Common business contracts provide tools for ventures to grow. Contracts prove useful whenever two or more people or businesses want to work together. The best contracts provide clear guidance on important issues. This helps avoid conflict and disappointment later.
Every well-run business has a handle on contracts. Now you can start getting a handle on contracts by reading this article. Once you have done that, schedule a call with us to discuss how you can set up your business contracts.
The Key To All Common Business Contracts
Remember what a business contract does: supports mutually-beneficial relationships. Contracts provide tools that anyone can use to decrease the likelihood of conflict and misunderstandings in a business relationship. A good contract supports this harmony by providing a written set of guidelines that everyone can refer back to when there is potential for conflict.
Also, the process of putting together a contract helps to uncover hidden assumptions that can blow up into legal issues later. Our experience as lawyers has shown us that the trickiest legal issues arise when issues are not addressed beforehand or are addressed ambiguously. Contracts solve this problem by forcing everyone to state a clear position on a given issue.
For contracts to work properly, they must be clear. That means no dated legalese or excess clauses that muddy the waters. The best contracts use plain English and seek to illuminate, rather than obscure, important issues.
Finally, the urge to use templates as your contracts may seem overwhelming. Despite that, resist the urge – understand that the value of contracts lies in everyone understanding the agreement and ensuring the language matches expectations. Templates can give you a general feel, but will not capture the essence of what you are trying to do.
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Common Business Contracts
In no particular order, a few common business contracts that you may encounter as you build your business:
Independent Contractor Agreement
Use an Independent Contractor Agreement when hiring an independent contractor. It makes working together way easier and less prone to misunderstandings.
A good independent contractor agreement sets out responsibilities and make sure everyone knows when and how they will be paid. It also contains ultra-key provisions such as intellectual property assignments and indemnification. (PROTIP: If you don’t know what those terms mean or how they work, talk to a lawyer. We made the process not scary or weird – check it out!)
Service Agreement/Agency Agreement
The Service Agreement represents one of the most common business contracts that we draft for our clients. The Service Agreement sets rules for how a service agency interacts with clients. These contracts go by a number of names: service agreement, agency agreement, creative services contract, etc. But they do the same thing regardless of the name used.
A typical Service Agreement contains provisions about obvious things like: payment terms, deliverables, timeline, etc. It also contains other super-important stuff (but not exactly obvious) like: intellectual property ownership, indemnification, choice of law, etc.
This contract ensures that both service provider and client have a good understanding of the project. This leads to fewer client conflicts and fewer unpaid invoices. Something that any successful business wants.
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The Terms of Service sets out rules of the road on how a customer interacts with an online service. It explains how someone can use a service, how they are charged and how they can do things like get refunds. Note: trying to use a one-size-fits-all approach to this usually backfires as every business differs.
People also call a Non-Disclosure Agreement a Confidentiality Agreement. Most people call it an NDA. Businesses use NDAs as either a standalone document or as part of other common business contracts.
Either way, the NDA makes sure that secret information stays secret. An NDA can either be one-sided or obligate both parties to keep information secret. A good NDA sets out what information the parties need to protect and how.
Operating Agreement/Partnership Agreement/By-Laws
In all cases, these documents set the rules for the company. They play a crucial role in helping everyone understand ownership and obligations. These documents set rules about who can join and how people leave. And they talk about how decisions are made within the company.
Not having one of these leads to serious headaches in a business. That’s because absence of a written agreement means default legal rules govern the situation. And these rules often lead to outcomes that nobody anticipated – and that may be less-than-ideal.
Like an independent contractor agreement, an employment agreement governs the work relationship. Employment agreements cover obvious territory such as salary, vacation policy and benefits.
But often an employment agreement can go further; it can also cover things like intellectual property assignment, confidentiality or general releases.
The form and content of these agreements (and most agreements) vary from state to state. Seek professional advice in your state when hiring and retaining employees.
A basic licensing agreement defines: how much the creator is to be compensated and on what terms; how the work may be used; for how long the work may be used; and other things that may be useful to define.
Don’t be fooled by the seemingly mundane nature of this type of agreement. Many of the largest creative fortunes were made through effective and clever use of licensing.
Other Not As Common Business Contracts
We could easily think of a dozen other common business contracts, but we thought we should keep things short and sweet. So we did.
But as your business grows, new relationships and opportunities arise. We can strengthen these relationships and capture these opportunities with good contracts.