5 Contracts that Your Small Business May Need

Disclaimer: This article is intended for the purposes of providing information only and is to be used only for the purposes of guidance. This article is not intended to be relied upon as the giving of legal advice and does not purport to be exhaustive.

There are many different types of contracts that a small business might need, and it is important to know which ones you will need in order to avoid any problems. In this post, we will go over five types of contracts that a successful small business may need. There are many others out there, but these five should cover most bases!

At Beeksma Law, we are also entrepreneurs and are passionate about helping small businesses and entrepreneurs succeed!

In fact, one client recently said, The team at Beeksma Law made this process so easy for me! They helped me determine what I needed to include in my contract and helped me understand each component.”

If you want to take a closer look at your existing contracts or want to talk about some new ones, then do book a call today to discuss your business needs with our team.

Do I need a contract?

This comes up often, especially when doing business with someone familiar. There is a conversation and everyone is in agreement, so why have a formal agreement?

Because too often, memories of conversations become clouded over time. In the absence of a contract, assumptions can be made. Assumptions become misunderstandings that quickly snowball into disagreements.

Too often, we see small businesses realize too late that an ounce of prevention would have resulted in a pound of cure.

Protect your relationships by having a contract in place. Clearly outline roles, responsibilities, expectations, and boundaries. Contracts don’t have to be complicated, but they do need to exist.  

Can I Do it Myself?

Let’s first discuss the danger of trying to write your own contracts or use templates from the internet!

Imagine you found a box lying in the ditch that said “cookies”.  Would you take it home and eat it? No! You have no idea where it came from and if it contains something that might be damaging to you.

It’s the same idea with template contracts. Unless you know the source, you cannot be sure if it is right for your business.  It could be written with a different jurisdiction in mind. It may reference antiquated legislation or a recent case may have clarified a certain point of how contracts should be drafted.

Whatever the issues, the result would be the same: you would have a contract that would not be serving your business and would, as a matter of fact, do real damage down the line.

Knowing that you need contracts specific to your business, which ones do you need? Here are just some of the contracts that your small business may want to have in place.

Service Contract

A service contract is an agreement to provide some service, whether it is a one-time event or ongoing.

A good service contract will contain the following:

* Details of the service and how long it will take to provide.

* Payment details, including when payment is due and whether there are any fees for late payments or missed deadlines.

The contract should also contain a termination clause so that either party can terminate at their discretion without penalty if they believe the other side is not fulfilling their obligations under the contract.

Website Terms of Use Agreement

If your business has a website (and yours most likely does) then you will need a website terms of use agreement.

Basically, it is an agreement between your business and users on the website outlining what visitors can and cannot do with the information contained therein. For example, a strong agreement will contain copyright protection warnings or sets forth any disclaimers related to the information on the website.  It will also contain a privacy policy that discusses the collection and use of any personal information obtained.

Non-Disclosure Agreement (NDA)

In order to do business, you sometimes need to share information with a potential client or a contractor. An NDA, also called a confidentiality agreement, protects the confidential information of your business, whether it is a product or service you are developing or the processes that you use every day in your business.

You have worked hard to develop your business and that information should not be used to further someone else’s goals.  A non-disclosure agreement can help to protect your business and its intellectual property.

Lease

If your business has a physical location, you are likely going to be leasing that space. 

You are going to want a lease agreement that outlines the terms of your relationship with the landlord.  

As well, your landlord likely provided you with a lease to be signed.  You are going to want to make sure that your lawyer reviews that lease before you sign it. She will make sure that you fully understand and agree to its terms. She may also give you some recommendations on negotiating certain terms so that you have more rights. 

Additionally, your business may be creating or selling products, so you will need to include information in the lease about what can and cannot be done on the property.

While each business is different and each space is unique, a lease will generally include the following:

  • the parties
  • details about the space, including:
    • the address
    • a legal description
    • the square footage
    • the type of space (warehouse, office, retail, etc.)
    • the term of the lease
    • the amount of rent
    • any fixtures that are included
    • any security deposits
  • how the property can and cannot be used.

A lawyer that understands business contracts and real estate is an invaluable resource when it comes time to negotiate a commercial lease for your business. 

Partnership Agreement

You may not be starting your business on your own. You may be working with a partner.

Of course, you go into business with someone because you get along. What could possibly go wrong?

As it turns out, there can be many disagreements that arise in the absence of a strong partnership agreement. While ideally a partnership agreement is drafted before you start your business, it can be written up at any point.

Basically, a partnership agreement sets out the relationship between business partners and their individual obligations.  A partnership agreement should include: 

  • the amount of capital that each person is investing in the business;
  • how profits and losses will be shared, split, or otherwise distributed between partners;
  • how the business will be run; and
  • how the partnership can be dissolved.

In the absence of a partnership agreement, the Partnerships Act sets out default rules that may not be to your benefit.  Therefore, it is prudent to put a formal agreement into place that sets out the terms of the partnership clearly.

Prevent Issues Before They Arise

At Beeksma Law, we are passionate about preventing or de-escalating issues before they turn into larger legal battles. One way that small businesses can avoid hefty legal expenses is by having the right contracts in place.

If you would like to learn more about how we help small businesses, please click here or book a call with us.

Weighing the Pros and Cons of Incorporating

Disclaimer: This article is intended for the purposes of providing information only and is to be used only for the purposes of guidance. This article is not intended to be relied upon as the giving of legal advice and does not purport to be exhaustive.

If you are reading this, then congratulations!  You either are starting a business and are wondering whether to incorporate, or have been doing business for some time as a sole proprietor or partnership and think it might be time to incorporate. 

In either event, congratulations!  As business owners ourselves, we know that owning a business is hard work. However, it’s one that we do because it brings our passions to life.  We recognize that you put a lot of your own time, money and effort into your business and want to ensure that your business is protected. 

That is why deciding whether or not to incorporate your business is a decision that is not to be taken lightly.  Of course, it goes without saying that the principles discussed herein are just that – principles.  Every business is different and so to discuss your specific needs, book a consultation with us here.

Let’s briefly consider the pros and cons of incorporating your business, along with the reason why you should absolutely seek legal advice to incorporate. 

Benefits of Incorporating Your Business

1. New Entity 

Your corporation is a separate legal entity.  What does that mean? It means that you can think of it as a person and that it has the same rights and obligations as a person.  For instance, the corporation can own property, enter into contracts and receive a loan.  A corporation can also sue others and be sued itself. 

Because the corporation is its own entity, it can continue even if the shareholders change.  This is a key benefit, as a sole proprietorship or partnership will cease to exist upon the death of the business owner.  

By contrast, the shares of a corporation will pass on to the shareholders’ heirs and the business will be able to continue.

2. Limited Liability

Many incorporate to keep their business debts and obligations separate from those of their shareholders. In many cases, liability is limited so that shareholders are only able to lose their investment in the corporation and not their personal assets. 

Legally, the division between the corporation and the shareholders is referred to as the “corporate veil.”  It’s worth noting that the veil is not absolute. 

There is case law where the courts have “pierced the corporate veil” and held shareholders liable for the actions of the corporation in instances in two types of situations: 

  • The corporation is formed for an illegal, fraudulent, or improper purpose; or
  • Those controlling the corporation expressly direct the wrongful action. 

However, generally speaking, liability is limited to the corporation itself and not to the shareholders.  Directors and officers, however, can be exposed to liability (that is why directors’ and officers’ liability insurance exists and is generally recommended). 

3. Tax Benefits

There are many tax benefits to incorporating, which you can discuss in further detail with your accountant or financial advisor. 

Broadly speaking, these are a few ways that it is beneficial to incorporate from a tax perspective:

  • Income can be divided amongst family members in lower tax brackets by issuing shares to them;
  • Corporations are able to write-off expenses that other forms of business cannot, such as entertainment expenses; and
  • Income is taxed at a lower rate for corporations. 

Disadvantages of Incorporation

So far, it is probably sounding like a no-brainer.  Lower taxes and less liability? What’s the downside? 

However, it would be prudent to discuss the disadvantages to incorporating.

1. It may not make financial sense

It is unwise to incorporate if you will be pulling out all of your dividends and leaving no money in the corporation.  If you do so, then you will miss out on corporate tax benefits, and in fact, may be left with a high tax bill. 

Additionally, since you must file a separate tax return for your corporation, the additional tax preparation costs may not outweigh the benefits. 

2. It is more paperwork

Corporations involve much more than just the act of incorporating.  For example, you must also keep the minute book updated. You must also keep the government apprised of any changes, such as the registered office or any changes to the directors and officers.  As well, there is an annual return (different from a tax return) that has to be filed each year. 

Do I Need a Lawyer to Incorporate? 

Strictly speaking, you do not need a lawyer to incorporate.  It is perfectly possible to file the Articles of Incorporation yourself and pay only the filing fee.

However, you are a prudent business owner and know that there are many times where a low initial cost only means a higher cost later on. At Beeksma Law, we see this time and time again with those who choose to incorporate themselves.  It is a classic example of “penny wise, pound foolish”. 

For example, some business owners incorporate and do not take into account the need to think ahead for future investors.  In order to balance their control of the corporation with including investors, Articles of Amendment often need to be filed to correct the mistakes that they made when incorporating themselves.  The cost to correct the problem costs more than the original incorporation would have if prepared and filed by a lawyer. 

Additionally, these issues are usually discovered when there is a tight timeline.  Having a lawyer advise on your incorporation from the beginning stages saves you time, money and stress.  It is clear to see that is the better option!

That is not taking into account the many other issues that we see with those choosing to handle incorporations on their own. It is truly in your best interest to seek expert legal advice about your business needs before incorporating. 

Turn to Legal Advice You Can Trust

At Beeksma Law, we are business owners ourselves.  We understand the challenges faced by small businesses and deeply care about our clients. We want their businesses to grow and not to be held back by administrative matters that could have easily been avoided with sound legal advice and planning. 

That is why we are happy to talk to you about your business and determine if a corporation is the right business structure for you. 

If you would like to book a free consultation, you can visit here. Our team would be happy to expand on the pros and cons of incorporating.