Is Your Business Legally Protected? 5 Contracts Every Owner Should Have

Starting a business is exciting and new. You have products to sell, a campaign to launch. Everyone’s rooting for you. What could go wrong?

We’d hate to be the ones to bring you back down to reality, but a lot can go wrong. Before you get too caught up in branding colors and brainstorming TikTok strategies, there’s something we should talk about. It’s an intervention of the legal kind.

Yes, legal matters can be boring, expensive, and belong in a courtroom drama. The truth is that contracts are your business’s suit of armor. They protect you and make everything smoother, clearer, and safer.

Many new entrepreneurs overlook the importance of written contracts… until something goes wrong. That “something” could mean unpaid invoices, misunderstandings with partners, or even lawsuits. How’s that for having a fun time? (insert sarcastic laugh here)

Below, we’ll discuss the five must-have contracts every business owner should have in place.

5 Types Of Business Contracts That Are A Must In Your Business  

Multiple types of business contracts serve diverse types of purposes. Therefore, it is important to understand the different purposes of these agreements and contracts. Hence, a business should fulfill all the criteria to ensure proper precautions.  

1. Service Agreement Is Crucial Among The Types Of Business Contracts

The service agreement is the backbone of any service-based business. If you’re offering a product or service, you need a clear document outlining:

• What’s being provided
  
• Payment terms
  
• Timelines
  
• Deliverables
  
• What happens if someone ghosts or goes rogue
  

Without a solid service agreement, you’re relying on good vibrations and handshake deals. Spoiler alert: that won’t hold up in court if something goes sideways.

Include a clause that covers late payments, cancellation fees, and ownership of intellectual property (IP). Law experts say the lack of clear language on IP can lead to disputes about who owns what, particularly in creative or tech industries.

2. Independent Contractor Agreement Is Also Important Among The Types Of Business Contracts

Hiring a freelancer or consultant? Don’t Venmo them and hope for the best.

An Independent Contractor Agreement clarifies that the person you’re hiring is not an employee, and therefore not entitled to benefits, insurance, or a W-2. This protects you from a major tax headache and potential legal issues down the road.

Even if your freelancer is your cousin’s friend who’s “super chill,” get it in writing. The IRS and Department of Labor take worker classification very seriously. Misclassify a freelancer, and you could be on the hook for back taxes and penalties.

3. Partnership Agreement Is Most Important Among The Types Of Business Contracts  

Many friendships result in business partnerships. Unfortunately, that relationship can sour. And that’s why you must get everything in writing if it turns into the blame game.

A Partnership Agreement lays out:

• Who owns what percentage
  
• How profits and losses are split
  
• Decision-making rules
  
• Exit strategy if one partner wants out
  

The agreement varies from state to state. For example, a legally binding document signed in Tennessee must include a section on dispute resolution. Because the area is strategically located, the business landscape is a thriving ecosystem, making it an ideal locale for startups. 

Instead of getting caught up in legal drama with potential partners, the agreement establishes a process for resolving disputes. Let us say that you run a business in Murfreesboro, Tennessee. To ensure you’re on the right track, enlist Murfreesboro attorneys to sort out the legalities. 

You might think, “We trust each other, we don’t need paperwork.” Those famous last words could come back to bite you in a big way. Hudson, Reed & Christiansen recommends bringing a legal team on board that specializes in business matters and business formation.

4. Non-Disclosure Agreement (NDA)

You’ll want to protect your confidential info, whether pitching to investors, hiring employees, or collaborating with a web designer. That’s where the NDA comes in.

The contract prevents the other party from blabbing about your business secrets. Hence, without it, someone could walk away with your genius business plan and launch a copycat version.

You can draft a mutual NDA (both parties share confidential information) or a one-way NDA (only you are).

The U.S. Chamber of Commerce also notes that having strong confidentiality terms can help your business appear more professional and protect its long-term value. It comes in handy when applying for certifications or seeking funding.

5. Client Or Customer Agreement: Types Of Business Contracts

Selling to clients or customers? Then you need terms and conditions (yes, those things everyone scrolls past).

This agreement lays out:

• Payment policies
  
• Refund or cancellation terms
  
• Limitations of liability
  
• Disclaimers (important if giving advice or selling something with potential risks)
  

The T&Cs should be on your website if you operate online. Just because it’s digital doesn’t mean it’s not legally binding.

Therefore, having a clear agreement reduces your risk of chargebacks and that one nightmare customer who thinks a 30-day refund policy is “only a suggestion.”

What Happens If You Don’t Use Contracts?

Things can go very wrong, very fast. No contract means no paper trail, and no legal proof of what was agreed upon.

If there’s a breach of contract, and you don’t have anything in writing, you could end up paying the price. Investopedia explains that breaches can lead to expensive lawsuits, lost income, and damaged business relationships.

However, if you want to apply for government contracts or certifications, having clear legal documentation is a prerequisite.

What Happens If You Do All The Types Of Business Contracts By Yourself? Do you Need Professional Aid?

Your next question is, “Do I need a law firm for this?” You could DIY contracts using online templates. However, if you go at it alone, do so at your own risk.

Therefore, it’s best to bring in a full-service law firm to provide legal services when it comes to ensuring your company is above board, legally.

Different businesses work in different sectors and have different SOPs. Therefore, certain agreements require bespoke solutions for the unique potential problems. Thus, generalized templates often lead to problems for businesses.

What works for some other business person may not always work for you. Therefore, the entrepreneurs and business owners should seek help from professionals. Professional aid helps to prevent problems in the future.