What contracts should my small business have?

Why Every Small Business Needs Solid Contracts

Running a small business is exciting, but it also comes with risks. One of the best ways to protect your business is by having well-drafted contracts in place. Contracts help clarify expectations, protect your interests, and reduce legal disputes. But what contracts does your small business actually need? Let’s break it down.

Essential Contracts for Small Businesses

1. Operating Agreement (For LLCs)

If you’ve structured your business as a Limited Liability Company (LLC), an Operating Agreement is a must-have. This internal document outlines:

• Ownership percentages and profit distribution
• Roles and responsibilities of members
• Voting rights and decision-making processes
• What happens if a member leaves or the business dissolves

While not always legally required, an Operating Agreement helps prevent internal conflicts and provides clarity on how your LLC operates.

2. Partnership Agreement (For Partnerships)

If you’re running a partnership, whether general or limited, you need a Partnership Agreement to protect everyone involved. This document should include:

• Each partner’s contributions (financial, labor, expertise)
• Profit and loss sharing
• Decision-making authority
• Dispute resolution processes
• Exit strategies or buyout clauses

A handshake deal might seem fine at first, but disagreements can arise, and a formal agreement keeps things running smoothly.

3. Client Contracts or Service Agreements

If you offer services—whether as a freelancer, consultant, or business owner—you should always use a Client Agreement or Service Contract. These agreements should cover:

• Scope of work (deliverables, timelines, milestones)
• Payment terms (fees, due dates, late fees)
• Liability and dispute resolution
• Confidentiality and intellectual property rights

A solid service contract ensures you get paid on time and prevents misunderstandings about expectations.

4. Independent Contractor Agreement

Hiring freelancers or independent contractors? Protect your business with an Independent Contractor Agreement, which should include:

• Scope of work and deadlines
• Payment terms (flat rate, hourly, per project)
• Ownership of work produced (intellectual property rights)
• Non-disclosure and non-compete clauses
• Independent contractor status (not an employee)

This contract clarifies expectations and helps avoid legal trouble over worker classification.

5. Employment Agreements

If you’re hiring employees, an Employment Agreement outlines:

• Job role, duties, and compensation
• Benefits and time-off policies
• Confidentiality agreements
• Termination policies

A clear employment contract protects both you and your employees while ensuring legal compliance.

6. Non-Disclosure Agreement (NDA)

Protect your business secrets with an NDA, especially when working with employees, contractors, or potential investors. An NDA prevents:

• Sharing of confidential information
• Use of proprietary business strategies or client lists by competitors

NDAs safeguard your intellectual property and ensure sensitive information remains secure.

7. Non-Compete Agreement

A Non-Compete Agreement prevents former employees, partners, or contractors from competing with your business within a certain timeframe and location. These agreements can help protect:

• Trade secrets
• Customer relationships
• Competitive advantages

However, non-compete clauses must be reasonable in scope and duration to be enforceable.

8. Terms and Conditions (For Online Businesses & E-Commerce)

If you run an e-commerce site, SaaS business, or online service, having Terms and Conditions (T&C) on your website is crucial. A T&C agreement should include:

• Payment and refund policies
• User conduct rules
• Liability limitations
• Intellectual property protections

This contract helps prevent legal disputes with customers and protects your online business from liability issues.

9. Privacy Policy

If your business collects customer data, whether through a website, app, or email list, you legally need a Privacy Policy. It should outline:

• What data you collect and how you use it
• How customers can opt out or delete their data
• Compliance with GDPR and CCPA (if applicable)

A clear privacy policy builds trust with customers and ensures legal compliance with data protection laws.

10. Vendor Agreements

If your business depends on suppliers or vendors, a Vendor Agreement helps define:

• Product or service expectations
• Payment terms and delivery schedules
• Liability for defective goods or missed deadlines

This contract helps maintain strong supplier relationships and prevents disputes over quality or delivery issues.

Additional Contracts You Might Need

Depending on your industry and business model, you might also need:

• Lease Agreement (If renting office or retail space)
• Franchise Agreement (For franchise businesses)
• Joint Venture Agreement (For collaborations with other businesses)
• Loan Agreements (For borrowing money from investors or banks)

Frequently Asked Questions (FAQs)

1. Can I create my own business contracts?

Yes, but it’s best to have a lawyer review them. Online templates can help, but each business has unique needs that should be reflected in its contracts.

2. What happens if I don’t use contracts?

Without contracts, you risk payment disputes, misunderstandings, and legal trouble. A well-drafted contract protects your rights and sets clear expectations.

3. Do all businesses need NDAs?

Not necessarily, but if you handle sensitive information, an NDA can help prevent leaks and protect your business secrets.

4. Is a handshake agreement legally binding?

In some cases, yes, but it’s difficult to prove in court. A written contract is always safer and provides legal protection.

5. How often should I update my business contracts?

Review contracts at least once a year or whenever business circumstances change (e.g., new regulations, expansion, or policy updates).

Final Thoughts

Contracts might not be the most exciting part of running a business, but they’re essential for long-term success. By having the right agreements in place, you protect your company, prevent disputes, and ensure smooth operations.

Need help drafting your contracts? Consult a business attorney to tailor agreements to your specific needs. It’s a small investment that can save you from major headaches down the road.

References:

LegalZoom: Business Contracts

U.S. Small Business Administration (SBA)

American Bar Association

Forbes: Essential Legal Documents for Small Businesses