I am often asked, "what documents do I really need to run my business?" In this article, I’ll address and discuss the most important legal agreements needed by most businesses. Get started, maintain your business, and protect yourself with the right legal documents for your LLC.
Getting started: business formation documents
First of all, all businesses need some sort of formation documents. These might be less formal if you operate as a sole proprietor (which, by the way, is a really bad idea – a topic for another article), but if you own a limited liability company (LLC) or a corporation, you will have a certificate of formation or articles of incorporation depending on the entity you are using. These documents get filed with the appropriate state agency in the state where you intend to do business.
Legal documents for business operations
Then, you need operating documents. For a Limited Liability Corporation (LLC), you will need an operating agreement, and for a corporation, you will need bylaws. If you purchase a corporate or LLC kit online, it may include sample agreements along with ownership certificates, transfer ledgers, and a section for company minutes. More often than not, people who set up corporations purchase stock kits. LLC owners tend to do this infrequently, as stock certificates are not required with an LLC.
These documents set up all the rules and requirements for running your company, whether an operating agreement or bylaws. They are important if you have partners, set up bank accounts, get sued, and deal with the general public. But even if you are the only LLC member (shareholders are for corps and “members” are for LLCs), you should still have an operating agreement. While the laws have a lot of rules already in place for corporations, LLC rules are established almost exclusively from your operating agreement. With small businesses and limited public filings, these documents not only protect you and give you the authority to operate but also represent your ownership in the company.
Finally, you need many documents to help you legally and safely do business with persons and businesses who are your customers.
You might need some sort of client agreement or contract. As a lawyer, I have a retainer agreement that each new client is required to sign that makes clear all my rules for doing business. It also states my rate (whether flat fee or hourly) and lists some legal and ethical protections required to be disclosed to clients by the New Jersey rules of professional conduct.
Depending on your industry, you may be subject to similar requirements, including the use of a written contract, certain items that must be included in these contracts, and any disclosures required by law. If you are not sure of your obligations, check with your state industry association or agency.
In addition to a client agreement, you might want employees to sign an agreement that limits their ability to disclose any information they learn by working for your company or limits their right to steal clients and employees were they to leave or get fired from their employment. Business owners too often overlook these NDA/NSA agreements until it's too late and someone has stolen information, client lists, and company employees to start their own competing business. If you have confidential information or trade secrets, this type of agreement should address that information as well.
Other agreements, depending on your industry and profession, include subcontractor contracts, vendor agreements, and others.
Protect your business with the right legal documents
The biggest mistake business owners make is not using written agreements to run their businesses. Setting the rules of your "game" and making things clear to clients and contacts avoids problems in the future. Or, at least if you inevitably run into problems, you are not arguing about what you agreed upon in the first place.
Tune in to my podcast, The Accidental Entrepreneur, or subscribe to my blog for more helpful resources for establishing and maintaining a successful business. Avoid the common pitfalls business owners often make and protect your business with legal advice you can trust. Get in touch for more information about the legal documents you might need for your business, to suggest future podcast and blog topics, or to become a guest on my show here.