Guide to Contracts & Agreements

No doubt you already know you need some contracts in your business. The thing is, you don’t know what you don’t know (these are the words we hear most often from new business owners). 

Not to worry – you can quit your Google searching – we’ve put together a list of the most important contracts and agreements you’ll need along your business journey.

Non-Disclosure Agreement /Confidentiality Agreement

A Non-Disclosure Agreement (NDA) is one of the first legal agreements business owners look for. Of course, when you first have your lightbulb moment, your brain sort of automatically goes to “this is brilliant, no one has ever thought of this before, I can’t tell anyone in case they steal it and beat me to market!” Am I right?

If you’re looking for an NDA at that point, I’d encourage you to take a breath and slow down. Do your due diligence. I hate to burst your bubble, but there is almost no such thing as a new idea. The difference is, that lots of people have ideas, but only a few execute them – ever fewer execute them successfully.

Now the execution part? That’s the bit you want to protect. If you’re getting your foot in the door of a tight-knit industry or talking logistics with big names, you’re going to want to make sure you’re not getting screwed over. Entirely fair enough.

This is the right time for you to be looking into an NDA, which is essentially just an enforceable promise to keep the information secret.

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Heads of Agreement

You might be thinking, Heads of Agreement is just an agreement, right? Wrong. The addition of just those two little words takes an agreement from binding to non-binding. That’s right: a Heads of Agreement document – while it records the parties intentions – isn’t legally binding. Well, in most cases.

If I have a pet duck and I call it a dog, but it looks like a duck, walks like a duck and quacks like a duck, it’s still a duck, no matter what I call it, right? Same applies for legal documents and agreements – at the end of the day, it doesn’t matter if you call something a Heads of Agreement, Agreement or Deed, you won’t fool a judge into ruling your duck is a dog. They’ll look at the content of the agreement to classify it and decide whether it’s binding or not.

So, when would you want to use a Heads of Agreement? In most instances, you’ll want to sign a Heads of Agreement in very early or preliminary negotiations, where there are a lot of uncertainties ahead. It’s a document that provides a form or security or comfort, without signing the parties up to something that may not happen (whether or not it’s anyone’s fault).

Client Engagement Agreement (service-based businesses)

For service-based businesses, your Client Engagement Agreement (also known by many other names, such as Services Agreement, Client Engagement Letter and Terms of Service) is your most important legal document.

It’s the agreement that protects you and your business: setting up what you’ll do, how much you’ll be paid, when you’ll be paid, what’ll happen if you don’t get paid, limiting your liability and giving appropriate “outs” if things go wrong.

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Terms and Conditions (product-based businesses)

For product-based businesses, Terms and Conditions (aka T&Cs, eCommerce Terms, Sale Terms) are the backbone of your business. Your Terms and Conditions set out the terms on which you’re prepared to sell your products to customers. They’re a key part of your customer service strategy and underpin your relationship with your customers.

Without Terms and Conditions, you’re just sending out products, hopefully getting paid and crossing your fingers that you don’t get sued.

Terms of Use (software, platform or membership-based businesses)

If you’re in the Software-as-a-Service (SaaS) or online membership business, your Terms of Use (also commonly referred to us a User Agreement or Terms of Service) will be your core legal document.

What your Terms of Use will do is govern exactly what your customers can do with your software or website. It’s kind of like a combination between a client engagement agreement and terms and conditions of sale.

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Contractor Agreements

Many business owners hire contractors in the growth stage before they’re 100% confident they’re got the consistency of cash flow to hire full-blown employees. As contractors often have their own businesses (sometimes in a related or the same industry), it’s very important you have a contract in place.

Growing your team through contractors can reduce some types of risk in your growing business (for example, the risk of dipping into profit margins if receivables drop after you’ve hired employees), however, they introduce other types of risks.

Contractors are often running their own business and so a kind of conflict of interest arises. You need to manage the areas where your interests might diverge, for example, client contact post-engagement. I’m pretty sure you don’t want to bring a contractor on, just for them to turn around and steal your clients after, right?

Other areas are making sure they’re sticking to your policies and procedures and they’ve got adequate insurance to cover themselves if they mess up. You want to make sure you don’t end up footing the bill at the end of the day if they make a mistake and don’t have any insurance to cover them.

Employment Contracts

Once you’re ready to take on your first employee, you’ll want to put in place an employment contract. By setting out your respective rights and responsibilities from the start, you and your employee will be set up for a long and fruitful relationship. Finding, hiring and training staff is one of the biggest expenses you’ll have in your business -make sure you dedicate the time to getting it right.

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Key Takeaways

In this article, we’ve just brushed the surface of the many different types of contracts and agreements you’ll encounter in your business journey. We haven’t even given a mention to manufacturing agreements, leases, licenses, joint ventures or securities.

The most important thing is to embrace the role that contracts will play in your life from here on in.

Overwhelmed? It’s ok. The best thing you can do is to meet with your lawyer periodically. They’ll want to hear all about your business and assess the various risks in different parts (think: intellectual property, team members, suppliers, and so on), then propose a contract or agreement to manage it.

The best thing about having a contract or agreement in place (with basically anyone) is that everyone knows where they stand from day one. Better yet, if the whole thing goes tits-up, you’ll have a proper document to rely on to prove your case, instead of a series of emails and he-said-she-said stories, which will save you time, money and embarrassment if you do end up in a legal battle.

Do you need a new Contract or Agreement?
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