Starting and growing a small business takes vision, grit, and long hours. But even the most passionate entrepreneurs often overlook a critical part of long-term success: having the right legal contracts in place.
At Lancaster Law Firm, we’ve worked with countless small business owners who had the right product, the right team, and the right drive but the wrong paperwork (or none at all). And when things go wrong, not having the right agreements can cost far more than just money. It can cost your reputation, your relationships, and even your business.
Let’s break down the essential contracts every small business should have in place, why they matter, and how they protect you, your team, and your bottom line.
1. Operating Agreement (LLCs) or Shareholder Agreement (Corporations)
Even if your business is just you and your best friend running a startup out of a garage, you still need an operating agreement (if you’re an LLC) or a shareholder agreement (if you’re a corporation). These documents outline how the business is structured, who owns what, and what happens when someone wants to leave or passes away.
Why it matters:
- Defines each owner’s responsibilities and rights
- Prevents disputes about profit sharing or decision-making
- Sets rules for adding or removing owners
- Helps avoid costly litigation if disagreements arise
Without this foundational agreement, even simple disagreements can quickly spiral into expensive legal battles.
2. Employment Agreements or Independent Contractor Agreements
If you’re hiring people whether full-time employees or independent contractors you need to clearly outline the terms of their role. This includes compensation, job duties, confidentiality, and how either party can end the relationship.
Why it matters:
- Defines expectations for work performance and behavior
- Clarifies whether the worker is an employee or contractor (which has tax implications)
- Protects business information with confidentiality clauses
- Limits liability with proper termination language
Many small businesses get into trouble by hiring “contractors” who are actually functioning as employees. A solid contract helps you stay compliant with labor and tax laws and avoid penalties.
3. Client or Service Agreements
If your business provides services (consulting, design, coaching, cleaning, construction) you need a clear, written agreement with every client. This should outline exactly what services you’ll provide, payment terms, timelines, and what happens if either party needs to back out.
Why it matters:
- Prevents misunderstandings and scope creep
- Protects your right to be paid (and when)
- Limits your liability for things outside your control
- Provides recourse if a client doesn’t uphold their end
Even for “friendly” client relationships, a written agreement ensures everyone is on the same page and gives you legal standing if something goes wrong.
4. Non-Disclosure Agreement (NDA)
Whether you’re talking to potential investors, contractors, or strategic partners, you’ll likely need to share sensitive information at some point. An NDA ensures your trade secrets, proprietary processes, customer data, or ideas aren’t misused.
Why it matters:
- Protects your intellectual property and confidential business information
- Builds trust in early-stage business conversations
- Provides legal recourse if someone discloses or misuses protected information
Some business owners avoid NDAs because they seem too “formal”, but in many industries, they’re standard practice and expected.
5. Sales Contracts or Product Purchase Agreements
If your business sells goods, especially in large quantities or high-value items, you’ll need a solid sales contract. These documents lay out the terms of the sale, delivery, payment, warranties, and what happens if something goes wrong with the product.
Why it matters:
- Clarifies when ownership of goods transfers
- Details return and refund policies
- Limits liability for defective or delayed products
- Provides legal structure for enforcement in case of non-payment
Even if you sell via online platforms or invoices, having a master agreement can help cover your bases and protect your rights in larger transactions.
6. Website Terms & Privacy Policy
If your business has a website (and it should), you’re legally required to have a privacy policy if you collect any personal information from email addresses to payment data. Website terms of use help limit your liability, protect your content, and manage user expectations.
Why it matters:
- Ensures compliance with privacy laws (like GDPR, CCPA, and others)
- Protects your business from claims related to website use
- Sets rules around user behavior and intellectual property
- Demonstrates professionalism and transparency
In today’s digital-first world, these documents are no longer optional. They’re foundational.
What Happens Without These Contracts?
We’ve seen firsthand how the lack of contracts can derail a business. Without the right agreements:
- You can lose revenue due to scope creep or unpaid invoices
- You’re exposed to lawsuits over misunderstandings
- Valuable IP can be misused or walk out the door with a former contractor
- Your team or clients may become confused or distrustful
- You may end up in court without a strong legal foundation
The good news? Most of these contracts can be tailored to fit your specific business, industry, and goals. You don’t need a 50-page legal binder, just clear, professionally drafted agreements that reflect how you actually operate. At Lancaster Law Firm, we work with business owners across North Mississippi to draft, review, and strengthen the legal documents that keep operations secure and relationships protected. Contact us today to make sure your business is built on a solid legal foundation.