Important Basics of Business Contracts for Beginners

contracts, business, basics

Important Basics of Business Contracts for Beginners

Table of Contents

I. What contracts do I need for my business?

New businesses almost always need the following contracts: (1) Service Agreement, (2) Independent Contractor Agreement, (3) Non-Disclosure Agreement, and (4) Non-Compete Agreement.

Starting a business can be daunting. It seems like there are many legal aspects that are hard to understand and conceptualize. The best way is to break it down into categories.

All businesses should (A) form an entity (like an LLC), (B) conduct a trademark clearance search and file a trademark application, and (C) use contracts for business dealings.

Any business deal should be put in writing. The main contracts are Service Agreements, Independent Contractor Agreements, Non-Disclosure Agreements, and Non-Compete Agreements.

You don’t have to reinvent the wheel every time you need a contract. Templates are a great way to customize each business dealing. You just fill in the portion that is unique to the deal. Pick a template that fits the situation, and then write in the terms of the deal.

Here is an overview of the 4 main business contracts:

II. What is a Service Agreement?

You should use a Service Agreement if you are being hired by someone else.

A Service Agreement is best used when you are being hired by another person to complete a task. For example, if you are being hired to paint a house, you should fill out a Service Agreement and have the homeowner, or the person hiring you, sign the agreement.

This can help ensure that both parties have the same expectations and understanding about the work that needs to be done.

A written agreement is also necessary if the amount of money involved is over $500 in Florida. In Florida, a court will not enforce an oral agreement relating to money over $500.

III. What is an Independent Contractor Agreement?

You should use an Independent Contractor Agreement if you are hiring someone else.

An Independent Contractor Agreement is best used when you hiring another person or company to complete a task. Having an Independent Contractor Agreement helps to reduce the risk of conflict by clearly laying out all the applicable terms.

Make sure your expectations are written out. Do not assume that just orally telling the hired person or vendor will be sufficient.

For example, you can use an Independent Contractor Agreement if you are hiring someone else to paint your house.

Proper contracts should include the scope of work, payment terms, deadlines, and court venues in the event of litigation.

What is a Non-Disclosure Agreement?

A Non-Disclosure Agreement should be used if you want to prevent a person from revealing confidential information about you or your company.

Employers often include Non-Disclosure Agreements and Non-Compete Agreements as part of their hiring package. Nevertheless, an employer can still have an existing employee sign these agreements under certain conditions.

Non-Disclosure Agreements are important to protect a company’s confidential and secret information from being revealed to the public or the company’s competitors.

For example, a Non-Disclosure Agreement could require an employee never to disclose or reveal a company’s marketing strategies, customer list, pricing strategies, and secret formulas.

Coca-Cola likely requires any employees who deal with their secret drink formula to sign NDAs in order to avoid this trade secret from being revealed and copied.

IV. What is a Non-Compete Agreement?

A Non-Compete Agreement should be used to prevent a former employee from soliciting your customers or working for your competitor.

In conjunction with the Non-Disclosure Agreement, a Non-Compete Agreement is valuable to protect a company against unfair competition.

A Non-Compete Agreement can restrict a former employee from taking your customers and working for a company in a similar industry.

It is important to note that not all states enforce these agreements on the grounds that is contrary to public policy.

However, Florida law does allow an employer and employee to enter into a Non-Compete Agreement. The restraints on time and geographical area must be in accordance with Florida law or else a court will refuse to enforce it. For example, a Non-Compete Agreement restricting a former employee from working for a competitor for over 5 years would almost certainly be struck down by a Florida court.

Therefore, make sure that your templates include all necessary terms pursuant to local state laws.


The republication of this article was made possible by a collaboration between Flock of Legals and Attorney Melissa D. Goolsarran Ramnauth. The original article may be found here:

Click below to read more articles written by Attorney Melissa D. Goolsarran Ramnauth on The Flock:

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