Photo by Helloquence on Unsplash
These useful tips are worth going over for any new business owner looking to find out which legal documents apply to them.
Starting a business is an exciting time for any budding entrepreneur. It can be easy to feel overwhelmed by the sheer range of challenges involved with getting a new venture off the ground.
That’s why it pays to break down and prioritize a list of key actions right from the get-go. Of course, that’s usually easier said than done. Whether it’s developing a product, raising capital, recruiting talent, or creating a solid brand, there are plenty of challenges that seem to require our undivided attention every day of the week.
RELATED ARTICLE: MASTER DATA: WHY IT’S IMPORTANT TO YOUR BUSINESS
Coming to Grips with the Legal Side of Things
Coming to grips with the legal side of running a new business is often overlooked in favor of more exciting prospects. However, that doesn’t make it any less essential. A strong legal foundation is the backbone of any growing business. Also, it really helps to protect your interests and investments.
Even so, many entrepreneurs often find themselves unsure about which specific legal documents they need to have in place when starting up a new company. This all depends on the type of business structure they have in place, what they sell, who they partner with, and how they wish to operate.
These useful tips from commercial law firm Myerson are worth going over for any new business owner looking to find out which legal documents apply to them.
Partnership and Shareholder Agreements
There’s every chance that you’ve decided to start a business with another person or group of people, in which case you’ll need to set out a clear legal basis for your shared ownership of the company.
The most common form of document between two owners is a partnership agreement. This details what each partner’s role is within the business. Additionally, it lays out the terms and conditions that govern the partnership and how liability is shared between the partners. Also, this document clearly states exactly what percentage of the business is owned by each person. Finally, it sets out what should happen if the business is eventually sold or dissolved.
Why You Need a Partnership or Shareholder Agreement
It’s easy to think, especially among friends, that personal trust alone is enough to protect your interests and investments in a new venture. Even so, it’s not advisable to start investing time and money into a business without having a formal agreement in place.
This agreement is essential to ensure that no legal issues arise down the line. For example, there could be miscommunications, disputes, or even a breakdown in partner relationships. Your agreement should also place limits on the ability for individual partners to spend a certain amount of money or make key decisions without the consent of all other partners.
A shareholder agreement is slightly different in that it documents ownership of a limited company, rather than a legal partnership. The agreement is based on the number and relative worth of shares held by each person, rather than purely the number of partners within a company.
As a business owner, it’s important to understand that if you intend to work in a specific role for the company as well as own it then you should have an employment contract in place. This contract documents any key details around your own pay, benefits, working hours, annual leave, and sickness.
Of course, employment contracts are also essential when recruiting new members of staff to help grow the business. This sets out the exact terms of the working relationship between employer and staff, as well as any stipulations regarding probation periods, notice periods, and termination.
Other Types of Contracts
Contracts may also take the form of a director service agreement, which documents additional clauses for the employment of executive directors, MDs, CEOs, CFOs, or a chair of the business, as well as core salary and benefits. Non-executive directors are also advised to confirm the services they are providing as part of a non-executive service agreement.
Supply and Third-Party Agreements
Your new business will likely also rely on the goods and services of suppliers or third parties in order to keep things running smoothly. For example, a company selling children’s toys will likely source their product from a manufacturer. In this event, it’s important to formalize the arrangement in the form of a supply agreement.
Your Suppliers’ Agreements
This works both ways, of course. The third party will likely want to formalize the nature of the agreement on their own terms. Therefore, they may ask you to sign an agreement they have drafted themselves. It’s always a good idea to check these terms before signing in order to determine whether they are fair, comprehensive, and favorable for your business.
If you don’t have much experience with supply agreements with third parties it’s worth seeking expert advice from a legal professional to review documents and confirm any required amends.
A non-disclosure agreement (NDA) might seem like overkill for those just starting up a new business, but there really is no better way to protect your ideas and intellectual property, especially when looking to secure initial support from other people or third parties.
A basic NDA is a legal document that outlines any knowledge, detail, or confidential information that two or more parties wish to share among themselves, but that should not be disclosed to the public. If one of the parties should breach this contract in any way, the business owner can then pursue necessary legal action to prevent further damage and recover any losses they have incurred as a result. This ensures that key ideas or business plans are safe from exploitation without significant repercussions.
Myerson has been supporting the commercial law needs of the business community around Manchester, Cheshire, and Altrincham for decades. The firm specializes in commercial contracts, supply and distribution agreements, joint ventures, and partnership disputes.