Starting a business isn’t always difficult as it may seem. Provided you have the required legal documents in place, you are setting up your business for success. Documents are an integral part of the formation of a business. They help protect and preserve the interests of the business and the relationships the business has with other stakeholders. Here are ten fundamental legal documents you need to know before going into business.
1.Business Plan
A business plan serves as the backbone of the most startup business. It’s a piece of document that helps to lure potential investors into investing in a business idea, and it’s one of the main requirements when seeking business financing. According to commercial law, a good business plan should address three important issues, which are the current problem to be solved, the best approach to solve it and why your business is favorable to solve this problem.
Also, a business plan should also cover everything a financier would be interested to know. It should include things like the management and business structure, products and services, marketing and sales strategy, target market and the possible risks involved.
Partnership Agreement
Starting a business in a partnership structure brings with it numerous advantages. Apart from splitting the startup costs, you also get to share the responsibilities of running the business. This, in turn, gives each partner a certain amount of stake in the form of shares. However, the business partnership has many issues that can either make or break the business.
Therefore, it’s crucial that every stakeholder understands the partnership agreement and consent to them. Otherwise, partners may fall out, and legal disputes may arise, which is the main cause why most partnership businesses crumble. Partnership agreement represents the foundation of modern commercial law, and without it, partners would be unable to agree on anything.
A partnership agreement should contain the names of the partners, duration of the partnership, individual contributions, division of responsibility, provision for adding new partners and termination of the partnership.
3.LLC Operating Agreement
Limited liability company (LLC) business structure poses several advantages that a limited to sole proprietors or partnerships. Although not an essential in most states, an operating agreement is a mandatory piece of document for every LLC, especially those that are formed with multiple members.
This business contract highlights the structural, functional and financial decision of a LLC. Other than that, it also defines the mode of taxation, whether the company should be taxed as a partnership or a corporation. Once every member signs this document, it becomes legal and binding. Without an operating agreement, you may be personally liable in case someone sues your company. Make sure you work with a business lawyer who’ll guide you through the registration process.
4.Non-disclosure agreement
A non-disclosure agreement is an important legal document that protects private business information such as marketing strategies, financial records or customer list. In commercial law, an NDA acts as a watch guard for crucial business information. This document governs the relationship between your company and other stakeholders such as suppliers, employees, contractors and other business partners.
5.Employment Agreement
An employment contract is a legal document that binds the relationship between business and its employees, whether it’s oral or implied. However, to avoid future legal disputes with your employees, you need to have a written agreement. Otherwise, the content and terms of employment are subject to misinterpretation.
A written employment agreement outlines the employer and employee duties and responsibilities, and also address potential conflict areas such wages, benefits, working hours, termination among other important aspects of the employment. As an employer, you need to involve an employment law attorney when drafting the agreement and it should be reviewed thoroughly before given to an employee to sign.
Whether you are starting up a large or small business, sole proprietorship, partnership or a limited company, having the necessary legal documents ready can help you avoid future problems. If you’re having difficulty attaining some of these documents, hiring an experienced commercial lawyer can help you with all your legal documents needs.
