Without these 4 Vital Legal Agreements, Your Business Could be at Risk

When launching a new venture, business owners are sometimes so focused on drumming up dollars that they forget to do what is necessary to build a firm legal foundation on which to build a business that is ready for and will not be rocked by unforeseen legal problems or circumstances. The most effective bedrock for building a legally strong business is to ensure you have in place 4 key legal agreements that no business should be without!

Based on our own experience and the advice of many seasoned, successful entrepreneurs, below are the four core agreements founders need from the moment that brilliant business idea becomes a reality.

1.  Business Entity Agreements

At the outset of any business venture, it’s crucial to select the right business entity structure to maximize tax savings and minimize personal liability. Some of the most popular entity structures include sole proprietorships, general and limited partnerships, C corporations, S corporations and limited liability companies (LLC or even an LLC taxed as an S-Corporation).

Once you choose the structure that is most advantageous for you, the next step you should—and in most cases are legally required to—take, is drafting operating agreements (LLCs) or bylaws (Corps) that outline the way your business will operate, make decisions, break ties, allocate profits and losses, and admit new members or shareholders.

Your operating agreement or bylaws are legal documents that define the rights and responsibilities of each member or shareholder. These documents also establish the standards and provisions for running the company on a day-today basis, mandate what occurs if and when an owner dies or becomes incapacitated and outline the circumstances under which the company must or may dissolve. Aside from this “BIG“ stuff, the corporate governance documents for your business may also govern the owners’ duties and responsibilities to one another and the business, the method and means they must use to communicate business information to one another, and the guidelines for dispute resolution when they (inevitably) disagree.

To avoid conflicts, your business operating agreement or bylaws should be created, reviewed, and signed by all the owners or shareholders as soon as you form your company. Because Thrive Law is a business law boutique that specializes in these matters, we are ready, willing and able to advise you on all aspects of business formation, from which entity structure to choose to how to draft corporate governance documents that protect the company and the owners to the highest degree possible.

2. Intellectual Property Assignment Agreements

The moment you formulate your brilliant business idea is the perfect time to ensure it is protected. In short, from the outset, it’s a great idea to work with an attorney to identify all of your intellectual property, (IP), determine who should own it—the individual owner or the business itself, register the IP so that it is protected, and monitor it for infringement. If your IP predated the formation of your company and you want the business to own it, be sure you have IP assignment or transfer agreements in place that transfer ownership to your business. Additionally, be sure any employment or independent contractor agreements include a provision that states any and all work performed for your company is “work for hire” that is owned by the company, not the individual. Otherwise, the individual performing the work may be able to claim full ownership of IP he or she creates, even if it was created on your company’s dime.

IP assignment agreements do exactly what their title suggest—they “assign” from one person or entity to another partial or complete ownership rights to the intellectual property assets—patents, trademarks, and copyrights—created for and used by your business internally or externally. Most venture capitalist investors will require IP assignment agreements that ensure your company (not you) owns the valuable IP. Plus, these agreements help protect your company from competitors or IP trolls looking to steal your ideas or products.

As your business law boutique, Thrive Law can assist you by drafting airtight IP assignment agreements that allow you to maintain total control of all the IP assets your business relies on to operate and grow.

3. Employee Contracts and Offer Letters

Unless you plan on running the company all by yourself, it’s probably wise to create comprehensive employment and independent contractor agreements and offer letters before you begin hiring employees or outside help. A good employment of ICA not only lays out the terms and conditions of employment or the engagement, they also include restrictive covenants that ensure your team, whether in-house or external, know exactly what you expect of them.

Well-drafted employee and independent contractor agreements are essential to protecting your business and its trade secrets. To ensure they do just that, it is essential that these agreements contain a nondisclosure and confidentiality provision, a noncompete provision, a nonsolicitation provision, and a nondisparagement provision. But don’t just draft an airtight agreement; be sure each and every employee and independent contractor reviews the provisions and signs it. An employee who has signed an airtight noncompete agreement is far less likely to quit and take all your trade secrets to your competitor.

4. Sales and Service Contracts 

Whether your company sells products, provides professional services, or a bit of both, you should have legal agreements in place to clearly lay out the rights and responsibilities of both your business and its customers. Sales contracts typically lay out the key elements—price, payment and credit terms, tax responsibilities, warranties, and liability limitations—for the sale of products and other goods.

Service contracts, on the other hand, explain the fees, terms, and conditions under which your company provides services, along with spelling out the responsibilities and liabilities of each party (yes, the client has responsibilities under a service contract). Ideally, service contracts should offer your company maximum flexibility for delivering the services, while also limiting its liability. Be sure the contract not only covers the traditional terms listed above, but also addresses any unforeseen events or circumstances that may occur.

If you’re launching a new business or own a business that that has been operating for some time on handshakes and prayers with no contracts, do not hesitate to reach out to the legal team at Thrive Law. We’re experienced in helping entrepreneurs protect their business interests and limit their liability by drafting comprehensive legal agreements that address everything that keeps you up at night. What’s more, as your business law boutique, we can also help you establish sound legal, insurance, financial, and tax systems for your business to further ensure it experiences maximum growth and minimum hardship over time.
This article is an educational service of Thrive LawTM, a business law boutique. It does not constitute legal advice or imply an attorney client relationship. We offer a full spectrum of legal services for businesses and are equipped to help you make the wisest choices about your business dealings while you’re alive and well or in preparation for the event of your incapacity or death. We also offer a Healthy Business & Creative Checkup for ongoing ventures, as well as outsourced general counsel plans for businesses who need a legal team on speed dial. Contact us today to schedule: 727.300.1990 or hello@thrivelaw.com. We cannot wait to meet you!