Top 8 Contracts and Agreements Every Business Owner Should Know
There are many legal documents related to business and employment operations that protect the rights of employers, employees, clients and customers. These are eight legal documents most business owners will come across in their lifetime, and most of them are critical to help ensure you are operating smoothly and legally. Avoid making common contract mistakes by becoming familiar with them.
1. Employment Contract
An Employment Contract is a written legal document that outlines the binding terms and conditions of the employment and is agreed upon by both the employer and the employee. The terms include an overview of job responsibilities, a probation period for the employee, compensation, other benefits the employee is entitled to and much more.
This document is critical because it fully outlines the employment relationship and can be referred to if things do not work out as planned. By setting out severance packages and details of employment termination, you can potentially avoid complicated issues surrounding these scenarios. It also gives a clear, legally binding explanation of expectations for both parties.
2. Non-Disclosure Agreement
The Non-Disclosure Agreement (NDA) is a legally binding contract between at least two parties regarding the privacy and confidentiality of privileged company information. The NDA details what information is considered confidential, what information can be shared and under what conditions.
This agreement is important because it lays out the binding terms and conditions that prohibit the sharing or disclosure of proprietary information. This agreement can be given to employees, clients, potential business partners and more. Confidentiality is key for many businesses, and this legal document protects your privileged company information, trade secrets, strategic plans and other information that would be damaging if they became accessible to competitors.
Similarly, Non-Compete Agreements are also sometimes given to employees by an employer. These are contracts in which the employee agrees not to enter into competition with the employer after he or she terminates the employment. They are typically in effect for a specific period of time after employment ends. This means that the employee will not enter into any activity or business that is similar in nature to that of the company.
3. Code of Conduct
A company’s Code of Conduct is the written set of rules, principles and values to which employees pledge to adhere. It is where the organization lays out the proper conduct for successful and ethical operations. Employees will be held responsible for any words and actions that may conflict with these values.
This document serves as a framework for ethical decision making within a business. It is therefore a very important communication tool regarding the standards and values of the organization. By outlining expectations of behavior, you can foster relationships of mutual respect amongst employees. You also have a binding document that outlines what will occur if parties do not follow the Code of Conduct.
4. Employee Handbook
An Employee Handbook establishes a thorough overview of specific employer information, such as company policies and procedures, for new employees. The handbook is vital in ensuring that you are equipped to settle conflicts and disputes when they arise, particularly regarding job duties, employee responsibilities, employee benefits and more. The handbook can also help protect the employer from legal liability by serving as a contract outlining policies and procedures. The handbook can protect employers from lawsuits regarding harassment, wrongful termination and discrimination by including specific guidelines for behavior and liability.
5. Severance Agreement
The Severance Agreement sets forth the severance terms of an employee upon termination from a business and specifies severance pay and other possible conditions of a severance package (if any). It also states a timeframe the employee has to consider the agreement and/or revoke the agreement after execution. This means the employee can back out and cancel the agreement after it has been properly executed within the specified number of days.
This document is very important in helping avoid potential lawsuits by terminated employees. The agreement often states that you will not be sued in exchange for certain benefits you provide upon termination.
6. Letter of Intent
A Letter of Intent is a document that summarizes agreed-upon contract terms in a proposed transaction between two or more parties. The Letter of Intent is typically used by parties involved in the purchase of a business and covers the key points of the transaction, such as purchase price and employment contracts.
This document is critical to provide the complete terms and conditions of the purchase of a business. It requires both parties to agree to act in good faith and avoid prematurely binding themselves to contract terms. It is the best way to clearly outline contract negotiations.
7. Lease Agreement
The Lease Agreement is a contract between a landlord and a tenant and can apply to leasing a retail or office space. The agreement allows for the lease of certain premises to be used as a retail store or an office space. The document outlines price, terms of the agreement, location of the property, conditions for leasing the property and more.
The document allows each party to understand responsibilities of maintenance and can be customized to ensure that the specific terms of the parties’ agreement are addressed. Termination and costs should be also addressed to avoid potential disputes regarding these terms.
8. Sales Agreement
The Sales Agreement establishes a contract between a seller and a buyer for the sale of goods; it can apply to big sales or the purchase of assets. The agreement includes the purchase price, warranties and terms and conditions of the sale.
This document is important to legitimize a sale by confirming the payment and conditions of the transfer and/or sale of property. The agreement can be customized to fit the needs of each party. A formal documentation of this transaction will protect the relationship of the parties and ensure proper implementation of the terms.