6 Key legal documents for your business
As a small business owner, you’re expected to be an expert in marketing, finance, legal, R&D and business development, not to mention your actual line of expertise. To help you out, we’ve put together a quick reference list of some common and useful legal documents you can use in running your enterprise:
1. Memorandum of understanding (MoU)
The MoU is a good way to kick-start an agreement – it’s a step up from a handshake but less formal than a contract as it is not intended to be legally binding. It records the terms of a deal with potential partners, suppliers or investors before a proper written contract has been prepared.
A word of warning - care needs to be taken in drafting a MoU to ensure it cannot be later found to be a legally binding contract. The law will find an agreement legally binding where the requisite elements of offer and acceptance, consideration and intention to be legally bound are present.
2. Non-Disclosure Agreement (NDA)
If you are going to have discussions with potential investors, partners, suppliers, contractors or employees in which you will be disclosing confidential and proprietary information or trade secrets, you need to have them sign a NDA beforehand. The purpose of this document is to make clear to the party receiving the information that they can only use and disclose the information for the purposes of your discussion (and any other purposes you have decided on beforehand). While no substitute for trust, an NDA places a contractual obligation of confidentiality on the other party. Use it in any business transactions in which you will be providing valuable confidential information but don’t yet have a contract in place in which contains non-disclosure clauses. It also demonstrates that you are a savvy and sophisticated businessperson.
3. Employment Agreement
When hiring an employee always use a proper contract of employment to avoid some serious commercial and legal risks down the track. You should definitely include clauses protecting your intellectual property and the confidentiality of your business operations. Non-solicitation and competition clauses are also important so you can protect information about your key customers and suppliers to maintain your competitive advantage. Starting date, hours of work, remuneration, leave and termination are also worthwhile putting in writing to avoid misunderstandings and disputes.
4. Independent Contractor Agreement
It is likely at some stage of your business’ growth you will want to engage independent contractors such as software designers, marketing consultants and graphic designers. There are a number of important considerations to address in making such arrangements including but not limited to price, services, ownership of intellectual property, confidentiality, liability, insurance and termination. Beware of illegal ‘sham contracting’ where an employer attempts to disguise an employment relationship. Become familiar with the key elements the law relies upon for distinguishing when a person working for you is an independent contractor or an employee. Basically an independent contractor has his or her own business and is engaged to provide skilled services to achieve an agreed result.