When forming a new business there’s a lot to think about. Incorporation, setting up your website, finding customers and making payroll. Many owners file their LLC incorporation paperwork and get right to work, assuming that the two ‘L’s are covering their legal bases.
That would actually make sense at face value. Limited Liability sounds like it would provide some level of legal protection to the business and its owner(s.) So what does an LLC really cover, and should you be using a service agreement, contract or other protection document as you engage clients, partners or employees?
An LLC at its core is an entity that is recognized by the government separately from its owners or managers. An LLC can purchase and own property, or enter into contracts. The major benefit of an LLC is to provide investors protection against losing more money than they invest into the organization. Especially LLC’s who maintain an Operating Agreement, clearly outlining financial and management responsibilities. Therefore, if a business were to take debt that resulted in the need to file bankruptcy, the LLC could declare corporate bankruptcy shielding the owners from some financial consequence.
Everyday business operations, work for clients, and partnerships however do not fall into the overall scope of an LLC. Which is why it is important to establish agreements or contracts with those who you do business with. The following agreements are important to have and establish as your business grows, to protect yourself, your investors and employees.
Sales Agreement: When a client purchases a product or service from you, how do you ensure both parties have a clear understanding of what will be delivered? How can you ensure that you will be paid for your services? A sales agreement, or service contract is a two way commitment between you and your client outlining such details.
Terms of Service: If you are selling goods or services online having a terms of service should be just as important as making sure your website it up. These are basically the rules or guidelines wherein you agree to provide a product or service, and your client accepts these terms. Also referred to loosely as your product disclaimer.
Employment Contract: While most of your first employees might be family or friends, that doesn’t mean you’re immune to employment issues. Having a clearly documented agreement of salary, role and hire date can hedge future risk of employment issues.
Nondisclosure agreement: There will be times in your business where you will need to share trade secrets, sensitive information about your processes or engage in discussions with potential partners. During the course of those discussions, and some time afterwards you will want to protect that information for getting out. A nondisclosure agreement, often mutual allows you to share this information with a person or organization under the understanding that it will go no further.
Affiliate agreement: Most commonly seen in online businesses an affiliate agreement is a contract that allows another website, public figure, business, or organization the ability to sell your product, or refer potential clients to you, and be paid for those efforts. Typically a fixed amount for each new client or lead generated. Due to the recent rise in online referrals and affiliate marketing in general, entering into an affiliate agreement is the best way to protect your brand and business in the event your affiliate partnership goes south.
Depending on your product, or business there are various forms of agreements and contracts to provide you with additional peace of mind. The first step in building your library of legal protection documents can begin with an easy and often free consultation with a business attorney in your area.