10 Essential Business Contracts for Startups and Small Businesses (with Templates)
Last Updated: 9 Aug 2022
Published On: 16 Oct 2020
As a small business/startup your priority is to grow your business and maximize profits – it is easy to neglect the legal aspects that are tedious, but equally as important. A lot of start-ups even rely merely on trust and verbal agreements when conducting business in their relationships with shareholders, partners, suppliers, and customers rather than taking time to draft contracts. You must understand that failure to document these agreements and understandings properly can prove fatal to business and brand image in the event of a dispute/litigation.
What are the Essential Business Documents for a Small Company / Startup?
Most small business owners/ start-up founders are unaware of which contracts their businesses need to protect their relationships with other parties. This is understandable – don’t worry, we have a list of the 10 essential business documents for start-ups and small businesses while starting and conducting business operations:
Where do I get these Essential Business Contract Templates?
It is crucial to have templates of common business contracts. However, most business owners do not know where to obtain templates. The most obvious way is to instruct a law firm to prepare business contract templates for you. However, this costs upwards of tens of thousands of dollars and many start-ups do not have the financial resources for this. For businesses that would like to save on time and costs or without a legal budget, an alternative is to create business documents through DocPro. We will be providing you with links to all the relevant business contract templates you need. They are completely customizable, meaning you can tailor them to your needs and simply download them in Word format when you’re done.
10 Essential Business Contract Templates for Your Business
If you are running a small business/start-up and do not know how to draft business contracts, do not worry, here is a list of the ten essential business contracts templates you need to kick-start and run your small business:
1. Shareholders' Agreement
What is a Shareholders Agreement?
If you are starting a business with another person, you need to enter into a Shareholder Agreement. It regulates the relationship between the company, its shareholders, and directors and governs how your business will be managed.
What to include in a Shareholder Agreement?
It is vital to draft a comprehensive Shareholder Agreement as it will be the go-to agreement in case of potential disagreement between the shareholders.
Here are some key provisions that your Shareholder Agreement must include:
Why is it important?
When starting a business with a limited budget/resources, owners often make the mistake of running the business without setting up a proper business structure. As such, when the business grows and starts to generate revenue, issues arise amongst the co-founders and can lead to business failure. Without a Shareholder Agreement, you will expose the business to huge risks and litigation costs, howsoever unforeseeable it may seem right now.
Shareholders Agreement Templates:
DOWNLOAD IN WORD OR PDF: Shareholders Agreement - Equal Shareholdings
A Shareholders Agreement is suitable for the set-up of a simple joint venture - a company with equal shareholding. This agreement is drafted for 4 parties and can be in Neutral, Strict or Loose Form.
DOWNLOAD IN WORD OR PDF: Shareholders Agreement - Unequal Shareholdings
A Shareholders Agreement to be entered into upon completion or establishment of the Joint Venture Company with standard clauses for minority protection. This agreement is drafted by four parties and can be in Neutral Form, or favor of the Majority / Minority Shareholder.
DOWNLOAD IN WORD OR PDF: Parental Guarantee to other parties in relation to Shareholders Agreement
In relation to a Joint Venture / Shareholders Agreement, a guarantee is given by a party's parent to the other shareholders for the party's obligations.
2. Investment Agreement
What is an Investment Agreement?
An Investment Agreement is a contract between a company and investors who want to purchase shares of the company. The investor can be a new shareholder, an external investor or even an existing shareholder.
What does it include:
The Investment Agreement covers the following key provisions:
Why is it important?
As your business grows, you will need funding to expand and grow in new areas. As such, you need to enter an Investment Agreement and outline the terms and conditions for the incoming investor such as restrictive covenants on selling/transferring of company shares, rights to purchase new shares, etc. Since the investors will have ownership rights in your business, it is important to have a well-drafted Investment Agreement to minimize the chance of disputes.
Investment Agreement Template:
DOWNLOAD IN WORD OR PDF: Investment Agreement – Single Investor
An investment agreement is a contract defining the terms of investment which a single investor invests in a company owned by managers/founders. The agreement is drafted in neutral form.
4. Service Agreement
What is a Service Agreement?
A Service Agreement is an agreement under which one party agrees to provide services to the other party for remuneration.
What to include in the Service Agreement?
A Service Agreement must include:
Why is it important?
If you are in the business of providing a service, you need to execute a service agreement to define the terms of your relationship with clients, so you are both on the same page and do not clash. It also helps you to define your responsibilities as a service provider and limits your liability in the event of a third-party claim.
Additionally, as the business expands, consistent use of the Service Agreement with the clients will make the contract management process more efficient.
Service Agreement Templates:
DOWNLOAD IN WORD OR PDF: Service Agreement – Long Term Neutral
A Service Provider providing various services in relation to Customer on a regular, long-term basis. Both parties intend for the services to continue indefinitely. This agreement is drafted in Neutral Form.
DOWNLOAD IN WORD OR PDF: Service Agreement – Long Term Provider
A Service Provider providing various services in relation to Customer on a regular, continuous, or long-term basis. Both parties intend for the services to continue indefinitely. This agreement is drafted in favor of the Service Provider.
5. Employment Contract
What is an Employment Contract?
An employment contract is a legally binding agreement between an employer and employee that outlines the terms of employment.
What to include in the Employment Contract?
It includes the following key provisions:
Why is it important?
The employment contract is beneficial to both the employer and employee as it ensures that both parties clearly understand the scope of employment. This has the effect of minimizing the chance of future disputes. The employee will be aware of what is expected in terms of performance standards or unacceptable behaviors at work. If the roles involve handling sensitive information, the confidentiality clause in the contract will ensure the employee does not disclose any confidential information to others.
Employment Agreement Templates:
DOWNLOAD IN WORD OR PDF: Employment Agreement for Junior/Mid-Level Staff (simple form) Employment Agreement between the employer and junior/mid-level employee highlighting employment terms, benefits, and restrictions. This is drafted in favor of the employer.
DOWNLOAD IN WORD OR PDF: Employment Agreement (Junior Employee with Share Options) Employment Agreement between Company and Junior Employee with the option for Junior Employee to purchase share options. This is drafted in Neutral form.
6. Independent Contractor Agreement
What is an Independent Contractor Agreement?
An independent contractor agreement is a written agreement that establishes the business arrangement between the business owner and the contractor.
What does it include?
An Independent Contractor Agreement must include:
Why is it important?
The main purpose behind hiring independent contractors is to avoid forming a legal relationship between employer and employee/agency/partnership with the other party.
Independent contractors can be hired on a whim to execute certain projects at various stages of business. They may be a more appropriate option for start-ups as it is easier to end the relationship/contract once the project is completed without being responsible for the benefits that employees are entitled to by law.
Independent Contractor Template:
DOWNLOAD IN WORD OR PDF: Independent Contractor Agreement – Simple Job Customer
A freelance Independent Contractor Contract performing a simple job for Customer at an Agreed Price. This agreement is drafted in favor of the independent contractor.
7. Memorandum of Understanding/Letter of Intent (“MoU”)
What is an MoU?
A Memorandum of Understanding/Letter of Intent (“MoU”) is a non-binding agreement that records the intent of parties to enter a business transaction. It is followed by a formal binding agreement between the parties.
What does it include:
MoU is a common document used among small businesses and start-ups for business transactions such as joint ventures/sale of a business. It must include:
Why is it important?
An MoU is important because it outlines the proposed business arrangement in clear terms, which will provide you with clarity on what to expect from the business relationship. It will enable you to make an informed decision before you decide to enter into a formal binding agreement with the other party. Also, it expedites the transaction that would otherwise turn out to be a lengthy process involving negotiation and drafting of a complex agreement between the parties.
Memorandum of Understanding/Letter of Intent Template:
DOWNLOAD IN WORD OR PDF: Memorandum of Understanding (MOU) - Joint Venture
A memorandum of understanding (MOU) in a joint venture situation. This represents the good faith intentions of the parties to proceed but is not legally binding. This document is drafted in favor of joint venture participants other than the leader.
8. Joint Venture / Partnership Agreement
What is a Joint Venture?
A joint venture is a business arrangement whereby two or more businesses collaborate to pool their resources on new business activity.
What does it include?
Why do you need it?
As a small business/start-up, you aren’t equipped with all resources and expertise (such as funding, distribution services, technology, marketing expertise, etc.) you need to fuel your innovative business idea. As such, by creating a joint venture through collaboration with other companies and combining their resources with yours, you will be able to meet your goals more easily.
There are two ways of creating a Joint venture:
If you need more information on whether you should have a joint venture or partnership, check out DocPro's blog here.
Joint Venture Template:
DOWNLOAD IN WORD OR PDF: Joint Venture Agreement
An unincorporated Joint Venture/Consortium Agreement with a Joint Venture leader and participants to provide service to a client in a particular jurisdiction. The association is for non-permanent services required for a specific project. This agreement is drafted for four parties and can be in Neutral Form, with full or no indemnity between participants.
Partnership Agreement Template:
DOWNLOAD IN WORD OR PDF: General Partnership Agreement
A General Partnership established under local laws. It provides a basic Partnership framework only. This agreement is drafted for 4 parties and can be in Neutral, Strict or Loose Form.
9. Lease Agreement
In the initial stages, small businesses/start-ups usually do work from a home office. However, as the business expands, they will have to lease commercial property or rent co-working/shared office space.
What do you need to consider in the lease agreement for commercial property?
If you decide to rent a commercial property, you need to sign a lease agreement with the landlord. A lease agreement governs the use of the rented property for commercial purposes.
The important things to watch out for in a lease agreement are:
A co-working space is rented through a license to occupy, i.e., it only permits you to use the property. It does not need a traditional lease agreement, which renting a commercial property would require. Co-working spaces are therefore more popular amongst small businesses and start-ups for their lower rental prices and flexibility.
The important things to consider before renting a Co-working Space?
Can’t wait to start renting a co-working space? Check out a full blog on 5 things to consider before renting a co-working space. Read more at: https://docpro.com/blog/5-things-to-consider-before-renting-a-coworking-space.
Lease Agreement Template:
DOWNLOAD IN WORD OR PDF: Lease – Commercial (Neutral)
Lease of commercial property with options on rent-free period and early termination. A lease is over 3 years and in the form of a deed. This is drafted in neutral form.
DOWNLOAD IN WORD OR PDF: License to Occupy - Commercial / Shared Office Neutral
This License gives the licensee the right to occupy the commercial property for a defined length of time. A licensee has only a personal interest, and this interest can be revoked by the landowner at any time. This is a shared office arrangement drafted in neutral form.
What is GDPR, and does it apply to your business?
General Data Protection Regulation (“GDPR”) is a complex and strict privacy law drafted and passed by the European Union. As a business, you are responsible for complying with the GDPR if you are collecting or processing data concerning people living in the European Union. Any non-compliance with the GDPR policy can result in heavy penalties.
If you deal in global markets and the GDPR policy applies to you, check out our complete guide to GDPR for small businesses: https://docpro.com/blog/a-guide-to-the-7-principles-of-gdpr-for-small-businesses-and-consumers.
Please note that this is a general guide to the most common contracts a business will need. This does not constitute legal advice. As each business may be different, you may want to speak to your local lawyer.
Prasanth Ramaswamy is a legal contributor to DocPro. Prasanth is a practicing solicitor at a leading international law firm specializing in corporate and finance law.
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