By: Katelyn J. Dougherty, Esq.

Embarking on the journey of starting and navigating a business through the waves of the commercial world entails numerous challenges, with understanding the legal tides surrounding business operations being crucial. Anchoring this legal seascape are contracts. This article casts a net over the essential contracts every business captain should have in their navigational kit, complete with a brief compass point of each. Serving as a navigational guide, this blog offers an overview of each essential contract type, helping you chart a course through their importance and practical application in the sea of commerce.

1. Founders Agreements

• What Are They: Founders Agreements are between the founders of a business. These agreements serve as a formal written record that delineates the foundational structure of the business partnership. Typically, they encompass detailed clauses that cover a wide array of essential elements such as the division of equity, the definition of roles and responsibilities of each founder, decision-making processes, and even contingency plans for various scenarios that the business might encounter. This is one of the first agreements business partners would want to discuss implementing.
• Why They’re Important: This type of agreement outlines the roles, responsibilities, equity shares, and other critical aspects of the business partnership. It helps prevent conflicts by setting clear expectations from the start. By explicitly outlining each founder’s roles, responsibilities, and equity shares, these agreements mitigate the risk of misunderstandings and conflicts in the future. They act as a clear, mutual understanding of what each founder brings to the table and how they are expected to contribute to the growth of the business. Furthermore, in situations where disagreements arise, these agreements provide a pre-determined framework for resolution, thus ensuring the stability and continuity of the business. In essence, Founders Agreements are not just contracts; they are the blueprints that guide and safeguard the business journey from inception.

2. Partnership Agreements

• What Are They: Partnership Agreements are formal contracts entered into between business partners, extending beyond the initial circle of founders. These documents are tailored to define the dynamics of the partnership in a detailed and legally binding manner. They encompass various aspects of the partnership, such as the capital contribution of each partner, the specific roles and responsibilities they will undertake, and the operational structure of the business.
• Why They’re Important: The significance of Partnership Agreements lies in their ability to create a clear and structured framework for the business relationship. They detail how profits and losses will be shared among partners, outline the decision-making processes, and set forth procedures for resolving conflicts. Having these elements laid out in advance ensures that each partner knows what to expect and how to navigate different situations. This clarity is vital in maintaining a harmonious and effective business partnership, reducing the potential for disputes and facilitating smoother operations.

3. Joint Venture Agreements

• What Are They: Joint Venture Agreements are contracts formed between two or more parties who agree to come together for a specific business project or venture. These agreements are particularly common when companies wish to collaborate on a project that is outside the scope of their individual operations, or when pooling resources and expertise is beneficial.
• Why They’re Important: These agreements are critical as they clearly define the scope of the joint venture, the roles and contributions of each party involved, and the manner in which profits (or losses) will be shared. Joint Venture Agreements also detail the governance and decision-making structures, ensuring that each party has a voice in key decisions. This clarity is essential not only for effective collaboration but also for managing risks associated with such ventures. They provide a solid foundation for the venture, ensuring that each entity’s interests are protected and responsibilities are clearly delineated, thus preventing misunderstandings and conflicts that could jeopardize the project.

(Learn some differences between a Partnership Agreement and a Joint Venture Agreement HERE)

4. Operating Agreements

• What Are They: Operating Agreements are internal documents for limited liability companies (LLCs). These contracts provide a detailed blueprint of the LLC’s operational and financial decision-making processes. They encompass the internal governance structure, member roles, voting rights, and procedures for routine business decisions.
• Why They’re Important: It details the management structure, profit distribution, and rules for changes in ownership, essential for smooth LLC operations. This clarity ensures that all members are on the same page, reducing potential internal conflicts and providing a clear path for the management and growth of the company.

(Learn some differences between a Founders Agreement and an Operating Agreement HERE)

5. Shareholders Agreements

• What Are They: Shareholder Agreements are internal documents for corporations (vs an LLC), and are among a company’s shareholders. Similar to an Operating Agreement for LLCs, these documents govern the relationship between shareholders, their rights, and their obligations towards each other and the company.
• Why They’re Important: They govern shareholder relationships, outline rights and responsibilities, document how decisions are made, provide a framework for resolving disputes, and define how shares can be bought and sold. This helps in preventing conflicts among shareholders and provides a stable environment for corporate governance and investment.

6. Employment Contracts

• What Are They: Employment Contracts are formal agreements between an employer and its employees. These contracts outline the terms and conditions of employment, including job responsibilities, salary, benefits, and workplace policies.
• Why They’re Important: They define the terms of employment, including salary, benefits, job responsibilities, and grounds for termination. They may also include confidentiality clauses and non-compete agreements to protect your business’s proprietary information and client base.

7. Independent Contractor Agreements

• What Are They: Independent Contractor Agreements are contracts with individuals or entities hired on a contract basis.
• Why They’re Important: These agreements are essential and define, amongst other things, the specific services to be provided, payment terms, and the contractor’s status as not being an employee, so there is no mistake and classification. This distinction is critical for tax and legal purposes, helping to avoid misclassification issues.

8. Client/Service Agreements

• What Are They: Client/Service Agreements are contracts outlining the terms of service between a business and its clients.
• Why They’re Important: These agreements are vital for setting expectations regarding the scope of work, timelines, payment schedules, and how disputes will be resolved. They help ensure a mutual understanding, leading to smoother client relationships and project delivery.

9. Supplier/Vendor Contracts

• What Are They: Supplier/Vendor Contracts are agreements with suppliers or vendors who provide products or services to a business.
• Why They’re Important: They specify, , amongst other things, the terms of supply, pricing, delivery schedules, quality expectations, and termination, which are crucial for maintaining a reliable supply chain and managing costs.

10. Lease Agreements

• What Are They: Lease Agreements are contracts for renting commercial spaces or equipment.
• Why They’re Important: If a business requires a physical location or specific equipment, these agreements define, amongst other things, the terms of use, rent, duration, and conditions for renewal or termination, providing stability and predictability for the operations of the business.

11. Advisory Agreements

• What Are They: Advisory Agreements are contracts with individuals or firms providing advisory or consulting services, typically to another individual or business.
• Why They’re Important: These agreements define the scope of the advisory services, compensation, and confidentiality terms, ensuring clear expectations from external advisors, and aiding in effective and efficient services.

12. Intellectual Property (IP) Agreements

• What Are They: Intellectual Property Agreements are legal contracts that deal specifically with the protection, transfer, and use of intellectual property rights. These agreements can take various forms, such as licensing agreements, non-disclosure agreements (NDAs), and IP transfer agreements. They can define how intellectual property (IP) is shared, licensed, or sold between parties.
• Why They’re Important: These agreements are important for businesses as they safeguard the company’s intellectual assets, which can include inventions, designs, brand names, and trade secrets. They ensure that a business maintains control over its IP and reap the benefits from its use or sale. These agreements are crucial for fostering innovation and creativity within the business, while also providing legal protection against unauthorized use or infringement of the company’s IP. They can also be key in negotiations and partnerships, allowing businesses to monetarily benefit from their IP while protecting their rights.

13. License Agreements

• What Are They: License Agreements are legal contracts in which the licensor allows the licensee the rights to use, produce, or sell intellectual property (IP), such as software, patents, trademarks, or copyrights. These agreements specify the terms under which the licensee can utilize the licensor’s IP, including the scope of use, duration, exclusivity, and any applicable royalties or fees.
• Why They’re Important: These agreements are critical for businesses that rely on IP as part of their operation or product offerings. They provide a legal framework that allows companies to monetize their intellectual property safely. By clearly defining the rights and obligations of each party, these agreements protect the interests of the IP owner while allowing others to legally utilize the IP, often leading to mutually beneficial business relationships. For businesses licensing others’ IP, these agreements clarify usage limits and prevent legal disputes related to IP infringement. They are fundamental in industries where IP is a core asset, enabling innovation and collaboration while safeguarding proprietary rights.

14. Privacy Policy and Terms of Use

• What Are They: Legal statements for businesses with an online presence.
• Why They’re Important: They inform the users of a company’s website about how the user’s data is collected and used, and outline the terms of using the website or services, which is vital for compliance with privacy laws and regulations.

Conclusion: Navigating the world of business contracts can be daunting, but understanding these essential agreements is crucial for protecting your interests and laying a strong foundation for your business. It’s always advisable to seek legal counsel when drafting or signing contracts to ensure they meet your business’s specific needs and comply with relevant laws.

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Don’t have a business attorney? Get in touch with our team by emailing Info@harbourbusinesslaw.com.

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This Blog was written by Founding Attorney, Katelyn Dougherty.

DISCLAIMER: This blog is for educational purposes only and does not offer nor substitute legal advice. This blog does not establish an attorney-client relationship and is not for advertising or solicitation purposes. Any of the content contained herein shall not be used to make any decision without first consulting an attorney. The hiring of an attorney is an important decision not to be based on advertisements or blogs. Harbour Business Law expressly disclaims any and all liability in regard to any actions, or lack thereof, based on any contents of this blog.