Formalities are essential for business partners
Small business owners and business partners often neglect the importance of having formalities on paper, but not having contracts and agreements in place can cause legal issues as the business grows. Of course, developing contracts can be a tedious task, but it’s worth your time if you want to protect yourself and your business. Here are three legal contracts business partners should have on file:
- An Operating Agreement is a document that describes the goals, expectations, responsibilities, and relationships of the business partners. Operating Agreements are by far the most important document for business partners to develop as it will protect them from costly litigations. The different sections of the document can include details about who contributes what, who gets paid what, how decisions are made, exit strategies and non-compete agreements.
- A Non-Disclosure Agreement (NDA) ensures that the company’s proprietary information is protected. The document describes what is considered confidential material, knowledge, or information. Making new employees sign a NDA allows you to maintain your competitive advantage.
- Independent Contractor Agreements are put in place when small businesses hire temporary workers such as contractors or freelancers. It’s a smart way to get additional help when needed. Business owners should establish a formal contract with their temporary workers because the IRS monitors employers who misclassify their workers to avoid payroll taxes.
It’s absolutely worth spending time on formalities in the beginning to protect yourself and your business. Relying on your personal relationship with employees, contractors or partners works early on when business issues are not yet complicated, but it might be too late by the time you discover an issue.
Are you thinking about starting a business partnership? Learn more about our unique 4-step process for creating Operating Agreements.