As an entrepreneur, creating a solid foundation for your business is critical for long-term success. One of the most important foundations to lay is a strong legal framework, which can be accomplished through the creation and execution of various legal documents.
While this may seem daunting for many entrepreneurs, prioritizing legal documents can save time and money while helping to protect their business interests in the future. In this article, we’ll explore the importance of legal documents and how entrepreneurs can ensure they’re properly prepared.
Why Do Legal Documents Matter For Entrepreneurs?
So, just why are legal documents so crucial for entrepreneurs? Essentially, these underpin the foundations of your business. Some of the main reasons entrepreneurs should prioritize legal documents include:
They establish the legal structure of your business
Different types of legal documents can help set up your business as either a sole proprietorship, limited liability company (LLC), or corporation. This will determine how you’re taxed and who’s liable for what in the event of any legal disputes.
It ensures all team members are on the same page
Whether it’s with shareholders, employees, contractors, or vendors, legal documents can help to ensure everyone involved in your business understands their roles and responsibilities. This can save a lot of headaches down the road.
It clarifies ownership rights
Not only do legal documents establish who owns what within your company, but they also protect your intellectual property and other assets. This will provide extra peace of mind for you, your team, and any investors involved in the business.
It establishes proper procedures for dispute resolution
If disagreements arise between yourself or members of your team, having legal documents to outline how to resolve these issues can ensure everyone knows where they stand. This can save time and money by avoiding expensive legal battles.
What Legal Documents Should Entrepreneurs Prioritize?
Now that you understand why legal documents are essential let’s explore which ones should be prioritized by entrepreneurs. It is important to note that the specific legal documents needed will depend on the type of business, its structure, and who is involved with it. However, there are some important documents that every entrepreneur should consider. These include:
A solid business plan
One of the most important documents an entrepreneur needs is a business plan. This document outlines the company’s goals and objectives, strategies for achieving them, and a financial projection. It serves as a guide to running the company and can be used to attract investors or secure financing, and should therefore be updated regularly.
Articles of Incorporation or Organization
This document legally documents the creation of a corporation and is filed with a government body. Information such as the name and location of the business is typically included, and these Articles often work in conjunction with byelaws.
Operating Agreement (for Limited Liability Companies)
An Operating Agreement outlines the rights and responsibilities of members in a limited liability company (LLC) and is important for establishing how the LLC will be managed and decision-making processes.
Partnership agreement (for partnerships)
As the name suggests, this document outlines the rights and responsibilities of partners in a partnership, including details such as ownership, roles, and responsibilities. It should also include procedures for resolving disputes.
Employment agreements
This is a document that defines the terms of employment for any employees hired by the business, including compensation, job description, benefits, and termination procedures.
Non-disclosure agreements (NDA)
This document is important for protecting the company’s confidential information from being shared outside of the business. It should specify what information is considered confidential and outline the legal responsibility of anyone who signs it with regard to keeping this information private.
Company bylaws for corporations
This document outlines the ways in which a company will govern itself, such as the procedures for holding and conducting meetings, voting rights of shareholders, and any other rules or regulations that should be followed by the corporation.
Memorandum of understanding
This document outlines an agreement between two or more parties and is used to ensure that all parties understand their obligations and responsibilities in the relationship. It should outline details such as the rights of each party, any specific terms or conditions, and how disputes will be handled and may be used between suppliers, customers, or investors.
Meeting minutes
This document records the minutes of any meetings that take place between members or partners in a business. It should include details such as who was present, what decisions were made, and any other important information discussed at the meeting.
Meeting minutes are important documents, and in many states, keeping these records is a legal requirement. They can help to protect the company in the event of any disputes or misunderstandings.
Final Thoughts
It is clear that entrepreneurs need to prioritize their legal documents in order to protect their businesses. These documents provide clear guidelines for decision-making, outline the rights and responsibilities of all parties involved, and help protect confidential information. They also help to ensure that any disputes or misunderstandings are avoided. Ultimately, having the right legal documents in place will make running a business much smoother and more efficient.
