There are several different types of contracts you may need when starting a business.  Even if your small business is online, you need to protect yourself.  This is especially important as your business grows and you start hiring more employees. 

This article will summarize the ten most important types of contracts for small and growing online businesses.  Your contracts should be well thought out and carefully drafted to ensure your business’s success.

Contracts for Small Online Businesses

1. Offers of Employment

The best way to protect your business from legal liabilities and misunderstandings from employees is to ensure you send offers of employment letters to every prospective employee.  Your employee should be expected to review and sign the offer, which should thoroughly lay out the scope of your employment relationship with them.

A good offer of employment letter will contain the following information.

  • The job you are offering
  • The job responsibilities
  • Salary and benefit information
  • A statement that the employment is ‘at will.’  This means either the employee or employer can terminate the job at any time.
  • That you require the employee to sign a nondisclosure or confidentiality agreement (to be discussed below)
  • That the offer of employment constitutes the entire agreement between employer and employee and is signed by both parties
  • A statement that any disputes will be handled exclusively by binding arbitration (this avoids any disputes landing in the courtroom, which can be costly for your business)

2. Nondisclosure, Confidentiality, and Invention Assignment Agreements

Employees inevitably have access to confidential company information. For example, employers require their employees to develop products, inventions, and business strategies in some circumstances.  The only way to ensure that this information remains with your company is to have your employees sign a nondisclosure, confidentiality, or confidentiality and invention assignment agreement.

Essentially these contracts ensure that all work product of your employees is the company’s property, even if the employee quits. It also ensures that the employee cannot disclose confidential company information outside the company.

If you have any kind of investors in your business, they will expect you to have these types of contracts in place with all parties.

3. Service Contracts

If your business provides professional services rather than selling products, you will need to have a service contract in place.  These can be called different things, such as an Agreement for Services Provided or Professional Service Agreement.  It lays out the terms and conditions under which you agree to provide services to clients and clearly lays out your responsibilities and liabilities.

The purpose of a service contract is to avoid liability and misunderstanding. Therefore, there should be some flexibility in your ability to complete services, a fee schedule (including additional fees that will be incurred due to unforeseen circumstances), and limitations of liability.

4. Sales Contracts

If your business sells products, you will need a sales contract instead of a service contract.  Your sales contract will outline prices, terms, and conditions for the sale of goods or equipment.  Sales contracts aren’t necessary if you provide high volumes of low-priced products but are necessary for higher-priced items.

Your sales contracts can be as simple as fine-print on your sales invoices, or they can be custom-made for high-dollar orders.  The critical components of a sales contract are:

  • Tax responsibility
  • Payment and/or credit card terms
  • Warranties
  • Disclaimers
  • Liability limitations

5. Confidentiality Agreements

There are several instances in business where you may need to share confidential business information with an outside party.  This is especially crucial if you are talking with investors, potential partners, or working on strategy with third parties.  Confidentiality agreements will protect your business and prevent others from stealing proprietary information.

These are also referred to as nondisclosure agreements.  The agreement requires that the third party hold all company information in strict confidence.  The contract should be signed before any information is shared.

A solid confidentiality agreement lays out the obligations of confidentiality, exclusions to confidentiality, how long the agreement is to remain in place, limitations on information use, and the right to seek injunctive relief if the party breaks the agreement or stops them from breaking the agreement.

Contracts Needed to Start a Business online

6. Website Terms of Use Agreements

Your online business has a website used to market your products or services.  It should contain a Terms of Use Agreement as a contract between the website owner and users or purchasers.

The purpose of this agreement is to avoid legal liability for the website owner.  It limits how people can use the site, disclaimers about content, liability limitations, and outlines the site’s privacy policy.  It will also state the jurisdiction where any disputes must be handled (usually the hometown of the website owner).

7. Letters of Intent

Letters of Intent are an easy, helpful way to make a ‘handshake’ deal before defining a legal agreement.

Be careful about what you outline as binding and non-binding terms.  Letters of Intent are usually non-legally binding documents that express your intention to complete a deal or negotiation.  They can, however, be binding contracts in some cases.  This depends on what it states in the letter.

8. Stock Purchase Agreements

These agreements apply to startup businesses seeking investors to raise capital by selling stock in the corporation.  Stock purchase agreements only apply to businesses with a corporate structure.  Because of this, we won’t go into too much detail here, but they are agreements that layout the type of stock, price, and number of stock shares, and representations and warranties surrounding the stock options.

9. Leases

Lease agreements are critical for businesses that occupy rental space. For example, in the case of an online business, you probably don’t have a storefront, but some dropshipping and e-commerce businesses require warehouse space.  The landlord usually provides standard lease agreements, but it’s good to watch out for specific clauses in your contracts.

Ensure that:

  • Space meets your needs
  • Your business falls within the uses the landlord allows in the space
  • The lease term is long enough, and there’s an option to extend
  • The landlord’s obligations are clearly outlined
  • There’s flexibility regarding subleasing
  • There are limits on operating expenses and tax increases

10. Loan Agreements

Most startup businesses will need to enter into a loan agreement with a bank or other financial institution. However, most people simply sign the standard lender’s form. Unfortunately, these forms have a tendency to be very one-sided in favor of the lender and leave the borrower under serious restrictions.

A loan agreement allows the borrower (you) to negotiate better lending terms than those outlined on the standard form. Therefore, you should fully outline and understand:

  • The total cost of repayment, including interest
  • The payment schedule
  • Your ability to prepay the balance without penalty or make lump sum payments (not all loans allow you to pay it off sooner than the borrowed term)
  • Your right to fix defaulted payments
  • Representations and warranties provided by the lender and borrower
  • What constitutes defaulting on the loan

Recommendations For Contracts For Online Businesses provides the opportunity to print and download legal documents, forms, and contracts for your online business.  The contracts are drawn up by a legal professional and are legally binding once signed.

These documents are accepted in all 50 states and only require filling in the proper information.

Final Thoughts

Which contracts you need will depend on the type of online business you run. For example, there are different contracts for service provision than goods provision.  If you are running your business yourself with no employees, there are fewer contracts you will require.  The legal structure of your business will also determine what types of contracts you need. 

Whatever legal documents you determine are necessary to protect yourself, it’s vital to have them in place.  This will protect your business and your clients and save you from liability claims in the future.

{"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}