A business’s success will not only be based on its products or services but also on the agreements that govern how it operates. Contracts can form the foundation of business relationships, helping define expectations, protect rights, and reduce potential risks. However, the actual benefits depend on how well they are drafted and aligned with the specific needs of the business. Whether a business is just starting out or well-established, having appropriate contracts in place may offer structure, stability, and legal safeguards. 

Agreements That Define Business Structure

The way a business is structured will determine the types of agreements it will need among its owners, partners, or shareholders. These internal contracts can help establish how decisions will be made, how profits will be shared, and how disputes may be resolved.

Partnership Agreements

A partnership agreement outlines the relationship between two or more people or entities who agree to operate a business together. It will typically define each partner’s contributions to the business, profit distributions, management responsibilities, and procedures for resolving disagreements or dissolving the partnership. By clearly setting expectations in a partnership agreement, business partners can avoid misunderstandings and maintain a more stable working relationship.

Operating Agreements

For limited liability companies (LLCs), an operating agreement serves a similar purpose as a partnership agreement. It may detail how the LLC will be managed, the rights and duties of each member, and the rules for adding or removing members. It may also address financial matters and decision-making processes. Even though some jurisdictions do not require an operating agreement, having one in place can provide clarity and help to prevent internal disputes.

Shareholder Agreements

Corporations often rely on shareholder agreements to govern relationships between the company’s shareholders and other important stakeholders. These agreements will typically outline voting rights, procedures for transferring shares, and what will happen in the event of a shareholder’s death or departure. They can also help balance power among shareholders and protect minority interests. Having a detailed shareholder agreement can prevent disagreements that might otherwise disrupt corporate governance.

Contracts for Business Operations

Once the structure of a business is in place, agreements may be established with outside parties as it conducts its daily operations. These contracts can help ensure that business relationships with vendors, clients, and suppliers are predictable and legally enforceable.

Vendor and Supplier Contracts

Vendor and supplier contracts define the terms under which goods or services will be provided. These agreements will specify details such as pricing, delivery schedules, quality standards, and payment terms. They may also include provisions that address delays, defective products, or missed deadlines. A well-drafted vendor contract can help both sides understand their obligations, reducing the likelihood of conflict and ensuring a steady supply chain.

Service Agreements

Many businesses provide services rather than tangible goods, and service agreements will set forth the scope of work, performance standards, payment terms, and timelines. They may also include provisions for confidentiality, intellectual property ownership, and limits on liability. These contracts allow both the business and its clients to understand what is expected, protecting the business from disputes over incomplete or unsatisfactory work.

Lease Agreements

When a business operates from a rented space, a commercial lease will define its rights and obligations as a tenant. The contract will include information about rent, lease duration, maintenance responsibilities, and conditions for renewal or termination. Understanding what will be included in a lease and negotiating lease terms carefully can prevent unexpected costs or limitations on business operations.

Employment and Workforce Agreements

The relationship between a business and its employees is another area where contracts can play an important role. Employment contracts outline the terms of employment, and they can help both parties understand their rights and responsibilities.

Employment Contracts

An employment contract may specify the employee’s position, compensation, benefits, and work schedules. It can also set out procedures for termination and grounds for dismissal. By clarifying these matters in writing, a business can minimize misunderstandings and demonstrate consistency in employment practices. Employment contracts can also provide stability for employees, who know what to expect from their role.

Independent Contractor Agreements

Businesses that engage independent contractors rather than or in addition to employees can use contractor agreements to define the scope of services, payment terms, and intellectual property ownership. These contracts help distinguish between employees and contractors, which can be important for tax and regulatory compliance.

Restrictive Covenants

Some contracts may include clauses that restrict certain actions to protect a business’s competitive interests. These provisions, known as restrictive covenants, can be critical in maintaining confidentiality and preserving business goodwill.

Non-Disclosure Agreements (NDAs)

NDAs will prevent employees, contractors, or business partners from sharing sensitive information such as trade secrets, client lists, or financial data. By requiring confidentiality, these agreements can help to safeguard valuable business information that could be damaging if disclosed to competitors or the public.

Non-Compete Agreements

A non-compete agreement restricts an employee or business partner from starting or joining a competing business for a specified period after leaving the company. While these agreements must be carefully drafted to be enforceable, they can help a business protect its market position and customer relationships.

Non-Solicitation Agreements

Another common restrictive covenant is a non-solicitation clause, which prohibits former employees or partners from soliciting the company’s clients or employees after leaving. This can help maintain stability within the business while protecting client relationships.

Additional Contracts That Can Support Business Stability

In addition to foundational and operational contracts, businesses may use other agreements to address specific needs or relationships, including:

• Franchise Agreements: These define the terms between a franchisor and a franchisee, including the use of trademarks, operational guidelines, and royalty payments.
• Joint Venture Agreements: These establish the terms for collaboration between businesses that work together on a specific project or goal.
• Intellectual Property Licensing Agreements: These allow one party to use another’s intellectual property, such as trademarks or patents, under defined conditions.
• Loan Agreements: These outline the terms under which a business will borrow money, including repayment schedules, interest rates, and collateral requirements.

Legal Help With Business Contracts

Every business operates differently, and its contracts should reflect its specific needs and circumstances. Well-written agreements may help clarify obligations and expectations. These contracts are often tailored to address unique business needs and should ideally be customized to fit specific circumstances. A skilled business law attorney can assist with drafting and negotiating contracts, helping to ensure that these agreements are well-suited to a business’s needs and provide appropriate legal protections.

Disclaimer: The content in this article is provided for general knowledge. It does not constitute legal advice, and readers should seek advice from qualified legal professionals regarding particular cases or situations.