Legal Documents to Start a Business
Launching and running your own business can be exciting and very rewarding. But without the proper documents, all your efforts to grow your business will be for naught.
Having all the necessary legal documents is essential to set your business up for success and keep it running without a hitch.
Here are the five crucial legal documents that you need to start and run your business:
1. Business Plan
Every business needs robust finances to run smoothly. A well-written business plan will help you attract the right investors for funding. It is an essential legal document that outlines all the important details of an organization and outlines key information such as business structure, financing, and operation plans.
Financial institutions and investors usually ask for a business plan when an owner approaches them for financing. Business plans will show your legitimacy and whether you have properly planned out all the aspects of your future operations to generate revenue.
Business plans will also help you strategize for the future to make the right decisions for your venture. Thorough business plans also have the following functions:
- To study the market and identify your strategy’s strengths and weaknesses
- To have a complete view of your business and its goals
- To get investors to fund your business
- To understand the competition, target market, and industry
- To find new business opportunities
- To create plans and strategies for any challenges that could arise
- To project when your business will break even and become profitable
2. Partnership Agreement
If you are planning to start a business with one or more people, you need to carefully craft a partnership agreement that covers all the details of your partnership.
This contract legally binds two or more parties in a venture. It includes essential information about the nature and features of your firm. It enables internal and external stakeholders to understand the management structure and funding of the organization. It also outlines the key functions of the company and the duties and rights of the partners.
A partnership agreement will be vital in resolving disputes between partners over ownership stake percentages and how business decisions should be made.
This document usually covers the following details:
- The partnership’s legal name
- The names and important details of all business owners
- Date of establishment of the business
- End date of the business (optional)
- The amount of capital invested by the partners
- Division of the profits and losses of the business
- Business taxation
- The decision-making process
- Resolution of disputes
- Steps to be taken in case of dissolution of the partnership or the departure of a partner
3. LLC Operating Agreement
If you wish to start a limited liability company (LLC), you must create an LLC operating agreement. This document outlines operational guidelines and lays down the rules for running the company. It creates a detailed record of the LLC’s ownership, management structure, and capital contribution of all members.
An LLC operating agreement is crucial for single-member and multi-member LLCs alike. It is also a legal requirement in New York, Maine, Missouri, California, Delaware, and Nebraska.
When creating an LLC operating agreement, you need to include the following details:
- Distribution of the ownership among the members of the business
- Division of the responsibilities and duties among the members
- Membership rights
- Allocation of profits
- Business taxation framework
- How members can leave the business
- How members can close down the business
An LLC operating agreement will also cover these essential details:
- The names and signatures of the members
- The capital contribution of each member
- Interest percentages
- The date of the annual meetings
4. Employment Contract
An employment contract is an agreement between an employer and an employee that details all crucial elements of their arrangement. If you hire employees in your company, you must create an employment contract to outline the expectations for you and your employees. This helps avoid miscommunication and misunderstandings with your employees later on.
An employment contract usually covers the following terms:
- The names of the employer and the employee
- A description of the employee’s responsibilities and duties
- The employee’s daily schedule and work hours
- The employee’s salary
- Reasons for the contract to end
- Notice periods for terminating the contract
- The governing state law that will rule over the contract
- Resolution of disputes
- Additional clauses specific to the business
5. Non-Disclosure Agreement (NDA)
All business secrets or proprietary information must be protected. However, a lot of this information is regularly shared with a company’s business partners or employees, which leads to the risk of confidentiality breaches.
A non-disclosure agreement or confidentiality agreement will protect your secrets and intellectual property from business rivals.
It usually includes the following key information:
- The names of the parties
- The governing state laws that will preside over the NDA
- The kind of confidential information that is being shared
- The reason for distributing this information
- The duration of the agreement
- How the information may be used
- Any exclusions to the agreement