- Legal
Businesses are started, operated, and eventually hit major milestones or begin to fade. Sometimes, the difference between the two is whether the business has well-drafted legal documents.
In fact, it is no surprise that business owners, especially early on, forgo critical documents, try to handle legal matters themselves, or use questionable templates found online.
Unfortunately, this can set the stage for failure. Poorly drafted legal documents:
- Have loopholes creating financial liability
- Often fail to address important aspects of the business
- Are out-of-date and no longer legally effective
For businesses big and small, here are the 10 most critical legal documents:
1. Business Plan
Drafting a business plan gives owners, equity holders, board members, and key team members a shared blueprint for success.
When a business is just an idea, it is easy to make decisions on the fly. But as the business grows, it becomes less clear where profits should go or how quickly to hire. A forecast — three, five, or ten years out — helps guide those decisions and keeps growth moving in the right direction.
In addition, recording your long-term business goals on paper holds you accountable. It keeps you true to your original vision.
2. Operating Agreement, Bylaws, or a Partnership Agreement
Operating Agreements
Operating agreements (for LLCs) and bylaws (for corporations) are foundational documents that govern day-to-day operations. For businesses with two or more members, these documents are crucial.
An operating agreement can range from 1 to 2 pages to upwards of 10 to 20 pages. LLCs are highly flexible legal entities. Each state has its own default rules that govern LLC operations without an operating agreement. Once you put one in place, its terms override those defaults.
Because of this flexibility, lawyers fall into two camps. Some see the LLC as the best structure precisely because of it. Others feel the limited state guidance creates too much uncertainty.
An operating agreement eliminates that uncertainty. It defines equity percentages, formalises roles and titles, and outlines how profits and losses flow. The agreement also covers dissolution, distribution timing, and — most importantly — whether the entity is member-managed or manager-managed.
Bylaws
Bylaws apply to corporations. They draw on well-established law and typically run from 5 to 20 or more pages. States — Delaware in particular — have detailed rules on corporate governance. Bylaws explain in simple terms:
- Shareholder rights
- How dividends will be distributed
- The purpose of the corporation
- Who the board members are
- The responsibilities of those running the operation
Partnership Agreements
A partnership agreement governs partnerships. Like operating agreements and bylaws, it defines the business, the partners, and each partner’s role. Partners can also use it to decide how they handle the arrival or departure of a partner, and how they share profits and losses.
3. Non-Disclosure Agreement (NDA)
A non-disclosure agreement (NDA) protects your confidential information, proprietary data, and trade secrets. Business partners, employees, and anyone else the business shares sensitive information with should sign one. If a business owner has to choose where to spend legal fees, an NDA is one document worth every penny.
NDAs also protect startups seeking funding — they keep business ideas confidential in a competitive market. You can also use them when starting a working relationship with a third party (such as a manufacturer) or when bringing on new employees.
After all, employees often have access to a company’s most sensitive information. Without an NDA, nothing stops them from taking what they learned and sharing it with a competitor.
4. Employment Documents and Non-Competition Agreements
Every business needs a well-drafted employment offer and a full set of employee-related documents covering the entire journey from hiring to termination.
These documents limit liability and spell out expectations. Many businesses do not realise that an employment agreement and an offer of employment are two different things. An employment agreement creates a binding contract with defined rights and obligations. By contrast, an offer letter creates a simpler, at-will arrangement.
Unless you are hiring an executive with negotiated terms like stock options and severance, an informal offer letter is the right tool. For independent contractors fulfilling short-term roles, keep a professional services agreement on hand to cover deliverables, pay, and expectations.
Businesses in competitive markets also need a non-competition agreement — or a well-drafted non-compete provision in the employment contract.
Keep in mind that non-competition agreements cannot be indefinite. Limit the restriction to a specific period — months or years — and, where relevant, a defined geographic area. This stops a trained employee from using that expertise directly against your business after they leave.
Be careful, however. A non-compete that is overly restrictive or threatens an employee’s livelihood may be found unconscionable and unenforceable in court.
5. Service or Purchase Agreement
A service or purchase agreement is essential for working with customers and clients. These agreements set clear expectations around:
- Expected deliverables
- When payment is due
- How to end the relationship
- How refunds work
- Ownership or licence for the product purchased
A purchase agreement covers completion time, finished product standards, shipping costs, and when liability transfers.
A licensed attorney should draft both agreements. Clients and customers know how to exploit loopholes and gaps — and the risk of leaving those gaps open is not worth it.
6. Memorandum of Understanding
A memorandum of understanding (MOU) applies when two businesses agree to act in a specific way, but the relationship does not need a full formal contract.
An MOU can lead into a more formal agreement later, or stand alone as a binding document. Whether it is binding depends on how the parties draft it and whether it satisfies the legal requirements for a contract.
MOUs work best when two businesses want to pursue a shared goal — without forming a joint venture. For example, a paint supply store that agrees to refer customers exclusively to one painting company, in exchange for that company buying all its supplies there, might formalise that arrangement with an MOU.
7. Letter of Intent (LOI) or Agreement to Negotiate
A letter of intent (LOI) and an agreement to negotiate are both more formal than an MOU. The LOI outlines the key documents two parties are working toward finalising together.
An agreement to negotiate is similar to an LOI — both parties commit to working toward a deal. However, this type of agreement is often used to ensure neither works at the same time with another company on a similar deal. Good faith negotiation is also required. This stops a party from walking away the moment a better option appears.
Negotiating takes time and money. Neither party wants to see that investment wasted. This agreement is smart when both parties are close to signing a formal deal — or when they know that months of discussion lie ahead.
Keep both documents pre-drafted and ready to use. Business deals move fast, and the other party may ask you to provide one. Without it ready, you risk an unnecessary delay that could cost you the deal, the partnership, or the profits.
8. Terms and Conditions (Website or Service)
Today, nearly every business has an online presence. Whether yours is fully virtual or your website drives customers to a physical location, you need well-drafted terms and conditions.
Terms and conditions are your website’s house rules. Everyone who visits, views, or uses your site — its content or services — agrees to them. At a minimum, your terms and conditions should cover:
- Who can lawfully access your website
- What visitors may and may not do while on your site
- What account creation requires from users
- The terms for purchasing your products or services
- Copyright protections for your intellectual property
- A reference to your privacy policy
- How visitors can contact you
A website without terms and conditions is like driving into the sun without sunglasses. Your terms preserve your rights as the site owner and govern how visitors use your content.
9. Legal Disclaimers
Legal disclaimers come in many forms.
Website Disclaimers
The most common type is the paragraph of legal language at the bottom of a webpage or checkout screen. Its purpose is to limit liability.
A health and wellness blog is a good example. Every page should carry a disclaimer stating that the content is informational only and not a substitute for professional medical advice. With that notice in place, a reader who claims harm from following your content will find it much harder to succeed in a claim against you.
Of course, the exact wording depends on your type of business. For many businesses, a disclaimer serves as the first line of defence when readers take action based on site content.
Product Disclaimers
Beyond website disclaimers, your business may also need one on product packaging or labels. Common examples include:
- Furniture at risk of tipping and causing injury or death
- Herbal supplements or topical beauty products that require FDA-regulated statements
10. Privacy Policies
Privacy policies are essential for every business — and especially for online businesses like blogs and e-commerce shops.
A privacy policy explains how your business collects, uses, processes, and shares customer information. Europe passed the General Data Privacy Regulation (GDPR) in 2018. California followed with the California Consumer Privacy Act (CCPA), effective January 2020. More states and countries continue to pass similar laws.
As a result, compliance with the GDPR and CCPA requires your privacy policy to address specific rights and obligations. Failing to comply can expose your business to heavy fines.
Beyond legal requirements, a privacy policy signals to customers that your business handles data honestly. Consumers understand data collection. If your web forms do not link to your privacy policy, visitors may question whether their data is safe.
Summary
These 10 legal documents are critical to the success of your business. The sooner you have them in place, the better positioned you are to grow quickly and scale without disruption.
When prioritising, focus first on legal compliance. While an operating agreement has real value, a privacy policy, legal disclaimer, or any document that reduces liability and satisfies a legal requirement should take priority.
Failing to plan is planning to fail. Each agreement limits liability and sets clear expectations. The best-case outcome of having all these documents ready? Your business is fully prepared.
