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Disclaimer: This article is intended for the purposes of providing information only and is to be used only for the purposes of guidance for small businesses in Ontario. 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.”
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 in Ontario 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.
Contracts for Small Businesses in Ontario
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.
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.
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.
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.
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 in Ontario can avoid hefty legal expenses is by having the right contracts in place.