Understanding Legal Contracts for Entrepreneurs: What Do I Need and Why Do I Need It?

07/02/2014 04:16 pm ET Updated Aug 31, 2014

Let's be real, legalese, contract language - total snoozefest - and sounds a bit scary too, right? And what does it even mean?

Understanding Legal Contracts for Entrepreneurs
What do I need and why do I need it?

CLIENT AGREEMENTS: Huge protection in the land of service-based businesses. Client agreements set forth the parameters of the relationship between you and your clients. This includes, but is not limited to:

1. The length of the relationship
2. Cost of the program (including making all fees non-refundable!)
3. Structure of the program
4. What will happen if the client is not making payments
5. Protecting all materials that you provide the client - a provision will be included that all of the materials provided are the ownership of YOUR company and that the clients are not allowed to share them with anyone else
6. Dispute resolution - just in case you need to take further legal action, you can actually choose that you want to have your dispute in a location that is convenient for you!
7. Governing Law - it's important to have the contract governed by the state where you run your business, as these are the rules you are already playing by

I always advise to send the document in PDF (or using echo sign) so that the client is unable to make any changes. Never send a contract in Word, and always have the client sign first and then provide the client with a fully executed copy for their files.

AFFILIATE/REFERRAL AGREEMENT. Want help promoting your business or a new launch? Affiliate/Referral Agreements are a great way to incentivize others to promote your business. This contract will state the terms of the Referral Program, including, the referral fee, the length of the program, and how you will pay the referrer.

WEBSITE TERMS & CONDITIONS. Got a website? You're already exposed to liability. Uh-oh. But no need to fear - protecting your Company is super easy - all you need are good old terms and conditions. This acts as a contract between your business and all site visitors. Depending on the type of business you have, terms can vary, but the essence is that the terms protect your Company from potential legal action by visitors to your website.

WEBSITE PRIVACY POLICY. Do you have a newsletter or other service where you collect people's e-mail? Then you MUST have a privacy policy. There are various state and federal laws that have specific rules on privacy policies - but as the Internet is literally the World Wide Web, visitors from all over the world potentially could be visiting your site opening you up to the liability of that state. Plain and simple: make sure you have a privacy policy.

CONFIDENTIALITY & NON-DISCLOSURE AGREEMENTS. Do you have members on your team or other people that you work with that will potentially have access to your client's information? Even something as simple as an e-mail address? Are you a part of a mastermind where you share ideas? In order to protect your clients and their information, as well as your ideas for future business plans and models, you should have a Confidentiality and Non-Disclosure Agreement with these third parties.

LIABILITY WAIVERS. Are you hosting a retreat? Offering an interactive event with potential clients? Liability waivers are super important for those of you who answered yes to either of these questions. This waiver will have the participant acknowledge that they accept any and all risks involved with the event and that he or she will not hold you liable for any injury that may occur. You don't want to be held responsible if, for example, someone injures themselves doing yoga at your event/retreat. Having the participant sign a waiver will protect you and your business.

NON-SOLICIT/NON-COMPETE. These agreements are usually with either an employee or a third party that you are contracting with that provides protection for your business and clients/customers. The agreement(s) will contain a provision that prevents the other person or entity from soliciting your personnel (non-solicit) and/or from starting a business, or that competes directly with your business (non-compete). The agreement(s) protect your trade secrets, confidential information within your business, business practices, etc. These agreements cannot last forever and are only limited to a certain area (miles from your business).

INDEPENDENT CONTRACTOR AGREEMENTS. Do you have a virtual assistant? Does someone help you with your website? These people would not be considered employees - nor do you want them to be because then you could be responsible for benefits and taxes (yikes!). These agreements clearly spell out that there is no employment relationship between you and the other person, and as a result, the other person is responsible to file his or her own taxes and obtain his or her own benefits (you would provide them with a 1099 at the end of the year or at the conclusion of your relationship). This person also cannot act as an agent of the company, meaning they cannot enter into agreements with another person on your (or your company's) behalf. The key thing to note here is that you cannot exercise a substantial amount of control over this person (i.e., where they work, the hours they work, the exact methods they use to complete the work, etc.).

EMPLOYMENT AGREEMENTS. These are needed for people you plan on having a long-term relationship with and want them to represent your business. You are then responsible for providing their tax information and potentially, their health benefits. Having someone hold themselves out as an actual employee, means that they can potentially enter into agreements on behalf of your business. They will represent your company in a public capacity. In almost every state, employees are "at-will", meaning they can be fired for any legal reason or quit for any reason. This being said, employment agreements are oftentimes in the form of offer letters. Hiring employees definitely requires speaking with an attorney due to the strict rules and regulations that can vary not only by state but also by county. Please note the difference between an employee and an independent contractor (remember: the exercise of control).

So now what? You're probably wondering:

:: Are all of these contracts essential? ::
:: Do I need all these contracts now? ::
:: What do I need first?::

This, my friend, is where a lawyer comes in.