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Protecting Your Start Up Business

What legal agreements you need when starting a business

There are many aspects to starting a new business. Carefully crafted agreements play an essential role in protecting the interests of the business and business owners over the course of a company’s lifetime. Below are three different types of agreements every business should have in place in advance of entering into any type of professional engagement.

1. Employment Agreements. An Employment Agreement sets forth the obligations and expectations of the company and employee in order to minimize future disputes. Key terms to include in an Employment Agreement are: compensation, scope of employment, benefits, reimbursement of expenses, liability protection for the employee, and termination. This document can also be a useful if you want to dissuade certain new hires from leaving your company too soon, or going to work at a competitor, known as a non-compete clause. A non-compete prohibits the employee from working in the same line of business as the employer for a certain number of months after the employee term of employment is terminated. While the advantage of having an Employment Agreement is not always apparent at the outset of starting a new business, it is a useful tool for protecting the value of your company down the road.

2. Client Agreements. If you operate a small business that provides services to clients, then you will need a client agreement. A client agreement is a legal contract that sets out the terms and conditions under which you provide your services to your clients. Throughout the varying stages of a client relationship, there different types of agreements that your business should have in order to effectively set out the rights and obligations of both parties, and protect your business’s interests when providing these services. Types of Client Agreements include:

Memorandum of Understanding (“MOU”) is considered an informal documentation of the terms of a project or relationship, often used to put important conversations with potential clients in writing, and falls somewhere between a formal contract and a handshake.

Letter of Intent is a formal document used by a party seeking to enter into a proposed business arrangement with another party. The letter of intent outlines the material terms and conditions of the proposed agreement.

Statement of Work (“SOW”) is an agreement that captures and defines work activities or deliverables, and a timeline for performance. Elements to a statement of work include, an overview of the project, key deliverables and payment milestones, acceptance criteria, and specifies terms and conditions.

Terms of Service Agreement is an agreement which provides the billing structure, late payment penalties, interim charge caps, scheduling and work time frame, termination of services, and ownership rights. While the Terms of Service can be used an individual agreement, it can also be included as a provision to any of the above-referenced agreements, depending on the circumstances.

3. Nondisclosure Agreements. A Nondisclosure Agreement is a legal document that creates a confidential relationship between your business and its clients, employees, outside contracts, and other business partners who might get a behind-the-scenes look at your operations. Whether you realize it or not, your business has information that should remain private, such as customer lists, financial records, or ideas for a new pricing plan. A Nondisclosure Agreement is your first line of defense to protecting this information. It is highly recommended that this agreement be entered into before any confidential information is disclosed.

By taking the time to think about the various elements on each document, you are setting the right foundation for your business. Because there is no one size fits all when it comes to preparing these types of documents, it is important to seek legal counsel in order to ensure that you have covered all your bases. Let the experienced attorneys at Anselmo Lindberg & Associates help you to determine what agreements that are right for your new business.

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