How To Protect Your Business with the Right Legal Documents

Small businesses often operate on a dream, the blood, sweat and tears of the owners (not always in that order), and tight operating capital. Formalities are sometimes an afterthought of the small business owner—survival is the name of the game. While it may not seem critical to the survival of your business, having the right set of legal documents at your fingertips (along with affordable on-call legal advice) can make life easier, free up time to work on your business, and save you from disasters that can sink your business.

Here is a list of some important documents that might make your business operate better and with less effort. This list is not an exhaustive list of important documents but it’s a good start for most businesses:

Business Plan: A business plan can be as short as one page or as long as a book. The importance of a business plan is twofold. First, if you seek startup-financing or attempt to sell your business, you’ll be asked for a business plan. Second, a business plan gives you clarity which can sharpen your focus and keep you from taking unnecessary and costly detours.

Nondisclosure Agreement: Nondisclosure Agreements (NDAs) are used to protect your trade secrets. Trade secrets often are not protected by copyright, trademark or patent law, so your best protection is a contract that gives you certain rights in case someone misuses your sensitive or valuable information. There will be times you’ll have to give up sensitive information…but you shouldn’t do it without adequate protection.

Employee Handbook: A good employee handbook can help you maintain a staff of at-will employees, protect your trade secrets and other sensitive information, outline what employees can and cannot do (for example, can they access Facebook during work hours or on break), explain vacation days and paid (or unpaid) holidays, etc. A bad employee handbook, however, can be used against you by disgruntled employees to make life a living hell (this is what usually happens when a business owner just copies an employee manual off the internet without the advice of an experienced attorney).

Employment Agreements and Commission Compensation Agreements: A good way to manage cash flow and incentivize sales professionals is to pay them by commissions. Don’t invite disputes (or worse, lawsuits) by failing to carefully document the formula, duration, qualifications and limits of the commissions. There’s no need to be dragged into court by an ex-employee based on a misunderstanding (or a fabricated misunderstanding), so make sure you’ve got the right Employment and Commission agreements in place.

Operating Agreement (for LLCs): While most states do not require a formal operating agreement, if you have an LLC with more than one owner, a written agreement is a good way to avoid potential disagreements, faulty memories and tense relationships. A good operating agreement that you follow is also good evidence that your business is not your alter ego.

Bylaws (for Corporations): Bylaws not only help you avoid potential future conflict (same as an Operating Agreement for an LLC), but corporation are required by state law to have bylaws in place.

Corporate Minutes: Corporations and LLCs are considered separate legal entities. As such, they make decisions, enter into contracts, borrow money, solicit investments, etc. Since your business doesn’t come in the form of a human body, the business needs to document important decisions and actions. Furthermore, corporations are required by law to keep certain minutes. Documenting your business’s acts is necessary to keep your personal assets out of reach of creditors. Have a minutes-template on your computer and plug in the necessary information at least annually and when unusual decisions (outside the normal day to day operations) are made.

Memorandum of Understanding: Some people have selective recall, especially when there’s a chunk of money at stake. Use a Memorandum of Understanding (MOU) to document important conversations or agreements. A Memorandum of Understanding can be a binding contract or it can outline general concepts and ideas that are not binding until a future contract is executed. Either way, an MOU can prevent selective recall or “he said/she said” disagreements. MOUs can be effective with employees, suppliers, joint venture partners and even family members involved in the business.

Online Terms of Use: Whether you have an e-commerce website or an informational website, Terms of Use can help you limit your liability by disclaiming warranties, for your own information as well as information contained in hyperlinks. Furthermore, you should let visitors know what they can or can’t do with your intellectual property, how they can and can’t use your site, how you will treat their comments (if you allow users to comment on your site, blog posts, etc.) and so much more.

Online Privacy Policy: It is important for users to understand what kind of general or personal information you collect, how you store it, how you will (or can) use it, how (or if) you use cookies, etc. In some states, a privacy policy is a required as part of every website.

These are just a few of the important documents your business needs. Protect your business, spare yourself unnecessary disputes, give yourself the advantage (in the unfortunate event you are sued) and sleep easier at night knowing that you have the right documents in place. Of course, you also need to make sure your business attorney helps you customize these documents to your particular needs. Not all businesses are the same, and therefore not all legal documents are the same.

Don’t know where to start?

Then apply now for your 30 minute Corporate Legal Assessment. It’s a free 30-minute call to assess your current legal issues and find out if an in-house attorney is right for you.