The essential legal documents for small business operations you need to succeed.
There is so much to do when you’re starting a small business—and a lot of it can be confusing. What legal documents for small business operations do you need to fill out? Where do you get them? And what forms do you need to file in order to legally conduct business?
Having the right legal documentation for your business is nonnegotiable. Not only is it necessary in order to operate your business legally, but it can also protect you from fines, hefty fees, lawsuits and a host of other legal issues.
Want to make sure you have all your i’s dotted and your t’s crossed? To launch and build your company, here are the essential legal documents for small business success:
Legal Documents for Small Business #1: Business License
You need a driver’s license to operate a car. So it only makes sense that you would need a business license to operate a business.
If your company is subject to permit or license requirements, you absolutely need to have them in place before you start doing business. Business permits and licenses come in many different forms—and the permits or licenses you need are going to depend on where and how you’re doing business.
In some areas, you may be required to obtain a general business license from your county, city and/or state in order to operate in that area. But permits and licenses aren’t limited to location.
Sometimes your profession may have additional licensing requirements in order for you to do business. For example, if you have a plumbing, contracting or accounting business? Those business types all have industry-specific licensing requirements you’ll have to meet in order to do business.
Whatever type of business your launching (or location you’re launching it in), make sure to do your research! Check your city, county and state’s websites to fully understand your permit and licensing requirements (and how to go about obtaining those permits and licenses).
Legal Documents for Small Business #2: Business Registration
In addition to securing the necessary permits and licenses to operate in your area, you also want to make sure to register your company according to your desired structure and the rules governing business registration in your area. While there are a variety of ways to structure your small business, chances are they’re going to fall into one of the following categories:
- Sole proprietorship: If you’re an individual freelancer (for example, a freelance writer), a sole proprietorship allows you to register a “doing business as” (DBA) name for your freelance service
- Partnership: If you’ll be working with a business partner, this business registration structure provides you some additional legal protection. Just keep in mind that registering your business as a partnership does come with additional tax reporting requirements
- Limited liability corporation (LLC): An LLC can be formed by a single person or multiple parties, but the purpose of registering your business under this structure? Protecting the owner’s personal property in the event of legal action without the effort involved in registering a full corporation
- C corporation: Perhaps the most complex structure for small businesses, registering as a C corporation requires extensive filing and taxation documentation and, in certain situations, can lead to double taxation of company earnings
There’s no one-size-fits-all solution to choosing a structure for your business. A small business attorney is the best person to advise you on choosing a business structure—and, once you lock in which structure is best for your business, you can find instructions on how to register your company on your city, county or state’s website.
Legal Documents for Small Business #3: Company Bylaws or Operating Agreement
Depending on what business structure you choose, you may also need company bylaws or an operating agreement. If you structure your business as a C corporation, you’ll definitely need to have company bylaws on hand—and, in most states, LLCs will need to submit an operating agreement along with their registration.
But even if you’re not legally required to have an operating agreement or company bylaws, it’s certainly not a bad idea to outline your company’s structure, ownership and policies—even if it’s just in an informal document.
Even if you don’t technically need these documents, thinking through these important issues up-front can help you to identify and resolve potential complications before they become major challenges.
If you need help drafting your operating agreement or company bylaws, there are plenty of templates online to get you started.
Legal Documents for Small Business #4: Ownership/Partnership Agreement
It doesn’t matter if you’re going into business with your spouse, your sister or your best friend of 30 years—in order to prevent conflict down the road (and protect everyone), a partnership agreement is a nonnegotiable.
A partnership agreement (also knowns as an owners’ or ownership agreement) clearly outlines the key elements of your business partnership, including:
- Percentage of ownership
- Division of profit and loss, and
- The roles and responsibilities of each partner/owner
It should also include clear guidelines on how to deal with disputes between partners—and how to proceed if a partner withdraws (or is asked to withdraw) from the company.
Templates can be a good starting point for drafting a partnership agreement. Because it’s such an important legal document for your business, however, you should definitely plan to have it reviewed (and, if necessary, revised) by a small business attorney.
Legal Documents for Small Business #5: Vendor Agreement
If your business relies on outside vendors or suppliers to fulfill your orders, you’re definitely going to need to have a vendor agreement in place.
A vendor agreement will outline the terms and conditions that your vendor relationship will operate under, including how, when and how quickly vendors will fulfill your orders. This is an absolute must to ensure that when a customer places an order with your company, you can fulfill it quickly and successfully.
Your vendor agreement can also help protect your company in case of supplier issues that impact your customers.
Because the terms and conditions are going to depend on your vendor and your business model, this is a document best left to the professionals. Work with your small business attorney to make sure your vendor agreement ticks all your necessary legal boxes.
Legal Documents for Small Business #6: Project Contract/Project Estimate
As a small business owner, you may run into the occasional client that wants you to get started on a project based on a “handshake promise” or an e-mail assignment. But those agreements won’t protect you in court if things go south with the client—so if you want to protect your business, you need to make it a priority to create a project contract.
A project contract or estimate is a legal document that outlines the core components of a client contract, including:
- The scope of the project
- Any important deadlines
- Estimated cost
- How and when payments will be made
- Who will retain ownership of the finished product
- What marks the successful completion of the project (or, how will the project end if one party needs to cancel early
The more detail you can include in your project contract/estimate, the better.
For example, don’t just include the amount you’re billing for the project as is; also include any other charges you may assess over the course of the project, like late payment fees or additional costs for changes to the project scope changes.
Can it be time-consuming to put together a good project contract? Yes. But once you’ve gone through the motions the first time, you can use your new project contract template for every new client and new project.
Legal Documents for Small Business #7: Invoice
If you work directly with clients (and you want to get paid for your services), there’s one legal document your small business can’t function without.
And that’s your invoice.
But not all invoices are created equal—and if you want your invoice to get you paid, you need to structure it accordingly. Here at FreshBooks, we’re (obviously) pretty big on invoices. And based on our analysis of the tens of thousands of invoices paid through our system, we’ve realized that there are three key elements you’re going to want to include on your invoice:
- A polite, genuinely appreciative message: When analyzing invoices, we found that a kind message like, “Please pay your invoice within fifteen days” or “Thank you for your business” increased the percentage of invoices that were paid by an average of 5%
- “Days” versus “net”: Minimizing confusion will keep your invoice at the top of your clients’ “to-pay” file, so state your payment expectations in days due (for example, “within 15 days”) rather than net terms (as in, “net 15”)
- Include late payment interest charges: Ironically, we’ve found that including a late payment fee on your invoice results in your invoices being paid slower, but with a higher percentage payment rate. Use your judgment here. If you need the cash right away, skip the message—but if you can wait awhile, include it to improve your odds of getting paid
At FreshBooks, we want to make the invoice process as simple as possible for small businesses—so we created these free invoice templates to help you get started. Just add business information, customize the details and you’ll be well on your way to getting paid!
Legal Documents for Small Business #8: Non-Disclosure (NDA) or Confidentiality Agreement
If you’re planning on hiring any employees or outside contractors who will be privy to sensitive information about your company—or if you work with a client, vendor or supplier who will need to share sensitive information about their organization—you may need a non-disclosure agreement (or, as it’s more commonly known in the business world, an NDA).
Essentially, NDAs protect the privacy of any sensitive information that’s exchanged between your company and the other party.
So, for example, let’s say you’re working on a client project and they need to provide you with their financials in order for you to complete the project successfully. In that case, they might ask you to sign an NDA to protect their financial information.
Or, if you decide to hire a freelance coder to help develop the game engine your company is building, requiring them to sign an NDA would prevent them from sharing your game idea with others (like your competition).
Non-disclosure agreements are pretty standard and, with a little research, you should be able to find a customizable template online.
Legal Documents for Small Business #9: Employment Agreement
When you hire a new employee, you need a legal document in place that outlines the terms of their employment, otherwise known as an employment agreement.
An employment agreement:
- Sets clear expectations about the role
- Outlines the conditions of employment, and
- Makes sure both you and your new team member are on the same page about the position, compensation and any other issues related to the role
Not only does this clarify things for your new employee, but it also allows you to set parameters for their employment (for example, including a non-compete clause that would prevent employees from working for your direct competitors) and can help protect your business against future employee disputes or litigation.
There are a lot of laws and regulations you need to follow when creating employment agreements, so before you send the agreement to your new team member, make sure you have it reviewed by an employment lawyer to make sure it’s up to par.
Legal Documents for Small Business #10: Independent Contractor Agreement
When you hire a full-time employee, you need an employment agreement. But not every person you work with is going to be full-time, and if you’re going to be working with independent contractors, you’re going to need a legally binding agreement for them as well.
An independent contractor agreement outlines the terms of your working relationship, including project details, compensation, and expectations for deadlines, ownership of work and other project details.
You can find templates for independent contractor agreements online but, like any legal document for your small business, you’re going to want to have it reviewed by a small business attorney to make sure that, if it was ever necessary, the agreement would stand up in court.
You’re not required by law to have an online terms and conditions agreement. But if you have a website for your small business, it is definitely in your best interest to have it—and to make your visitors accept those terms and conditions when they visit your website.
Not only will your terms and conditions agreement clearly lay out … well, the terms and conditions of your website, it also helps limit liability when you enforce those terms and conditions (so, for example, if you have a subscription service, including renewal fees will protect your company from customers who want to fight that fee).
Make Sure You Have the Essential Legal Documents for Small Business Success
Having the right legal documentation is an essential part of running a successful business (and making sure that business is protected). As you assemble these essential legal documents for small business operations, make sure to work with your attorney to ensure you have everything you need to (legally) succeed.
What other legal documents do you have in place to protect your business? Share your suggestions by leaving a comment below!
This post was updated in September 2019.