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5 Essential Contracts Every Business Needs

Starting a new business involves a lot of work, so you might accidentally ignore taking steps to protect your business from litigation. Contracts are some of the legal documents that remove misunderstandings and confusion. When properly drawn, the contract can reduce liability if something goes wrong. Discover common types of contracts that are essential to a small business.

1. Sales Contract

A sales contract can be an invoice, an order form, or any other mass or custom design document. The document identifies parties to a sale transaction and specifies the terms and conditions of the transaction. Common information in a sales contract includes liability limitations, disclaimers, warranty terms, and payment terms. The contract also specifies what happens when one party violates the terms of the contract.

2. Independent Contractor Agreement

An independent contractor might be a better choice than hiring an employee in some situations. For instance, you might need an independent contractor for graphic design, software engineering, app development, and plumbing. While you will pay the independent contractor to do work for you, an employer-employee relationship won’t exist between your business and the contractor. For this purpose, you need an independent contractor agreement that specifies the terms of the transaction.

The agreement details the nature of work, deadlines, scope, and obligations of both parties. The independent contractor agreement avoids confusion regarding payments and tax obligations. Most independent contractor agreements also have confidentiality clauses that protect the business’s confidential information. The contract should also specify who owns the intellectual property that the contractor creates during their relationship.

3. Indemnity Agreement

An indemnity agreement is necessary when a business transfers liability to another business. The indemnity agreement helps to protect one party when the other party engages in activities that have some risk. If any liability arises from the actions of a third party, the indemnified party won’t be liable. 

An indemnity agreement is essential for businesses that outsource some operations to other businesses. The contract may also be necessary if you let another party use your equipment or property. Also, if you allow another party to perform high-risk activities on your property, you may need an indemnity agreement.

For example, car rental services may want their customers to sign an indemnity agreement before hiring a vehicle. If an accident happens that injures other motorists or damages the car, the car rental company won’t be liable.

4. Employment Contract

Most businesses don’t usually give out employment contracts to new employees. But if you hire an employee who is difficult to replace or may have access to confidential information, an employment contract may be necessary. The contract may also come in handy if you suspect that an employee may leave your company and go to work for a competitor. The employees themselves might want an employment contract to get better job security. 

The employment contract might contain the following information:

  • Job title and description 
  • Commencement date 
  • Non-compete clause
  • Confidentiality agreement
  • Employee benefits and compensation

A well-written employment contract should clearly specify the rights and obligations of the employer and employee.

5. Service Contract 

If your business is about to provide a service to another business, you might want your customers to sign a service contract. The service contract details the services you will provide and the amount of compensation you expect. You might also include a confidentiality clause requiring your customers not to divulge your business’ trade secrets. Some service contracts also prohibit customers from hiring the service provider’s employees or competing with the service provider. 

A properly drafted contract should protect the business from possible litigation. Mohajerian can draft the contract and provide other legal services to your business. Our services include legal advice for intellectual property protection and labor and employment law. Reach out to us today to know how we can help you.