5 Essential Legal Documents Every Small Business Should Have

October 15, 2015 / Reading: 4 minutes

Legal documents are essential to protecting your personal and business interests during the course of your small business’s life cycle. Properly drafted legal documents can help you avoid potential liability from contract disputes and employee issues, guard your intellectual property and sensitive information from competitors, as well as ensure that your business can still function properly in the event that a business partners leaves or dies.

Almost all small businesses should consider or have the following legal documents on hand. If you are unsure or need further assistance regarding any of these documents, it is advised to speak with a business law attorney in your particular state for further clarification.

1. Limited Liability Company (LLC) Operating Agreements

Despite the fact that most state do not require operating agreements, it is crucial that you draft these agreements if your small businesses formed as an LLC. This is especially relevant if you have multiple partners involved in the business. An operating agreement outlines the functional and financial decisions for the LLC.

Properly drafted legal documents can help you avoid potential liability and guard your intellectual property.

When a small business has more than one member, this document is especially relevant as it helps define the distribution of profits and losses, how important business decisions are made, and lists out the obligations and rights of all members. Furthermore, an operating agreement serves as a contingency plan if a member decides to leave, sells their interest, gets divorced, or dies.

2. Corporation Bylaws

Unlike LLCs, most states require that S or C corporations keep a detailed and written record of bylaws. This document defines how your small business governs itself and details your business’s structure, governance issues, and individual roles of all parties involved with the business.

Bylaws are especially useful if disputes arise regarding voting and the specific roles of employees within the business. Most states do not require you file your business’s bylaws, but it is important to check your state to comply with any and all rules regarding corporation bylaws.

3. Employment Agreements

Employment agreements are contracts that detail the expectations and obligations of your business and your employees to minimize any potential employee disputes in the future. While every employee does not require an employee agreement, they are highly recommended as they are useful in dissuading new employees from disclosing confidential company information, leaving the company too soon after hiring, or leaving the company to go work for a competitor. It is highly recommended that drafted employee agreements be reviewed by an employment law attorney that is familiar with your state’s particular statutes and regulations.

4. Non-Disclosure Agreements

Simply put, a non-disclosure agreement is your business’s first defense to protect vital documents such as financial records, customer data, pricing strategies, marketing strategies, and any new and innovative ideas your company creates. This document essentially creates a relationship of confidentiality between your business and any employees, contractors, or other business partners who might need to see any of the aforementioned private documents in furtherance of working for your company.

5. Website Terms of Use and Privacy Policy

Any small business with a website should include a terms of use. While terms of use are not required by law, this document can greatly limit your business’s liability in cases where your web content includes errors or omissions and can limit liability for any hyperlinks that redirect your customers to other websites. Additionally, terms of use can serve as a guidance for what customers can and cannot do on your website. This is particularly relevant for websites that include blogs that allow customers to share or comment on content.

If your business gathers any information whatsoever about your website visitors or customers, you are required by federal law to conspicuously post a privacy policy that details specifically how this type of information will be collected and how it will be used and not used.