As a small business owner, you most likely have your mind wrapped around the basics of contracts. However, as your business grows, you will find that so does the complexity of deals and agreements.
As your business transitions from small to larger operations, you will most likely need to be knowledgeable on additional types of contracts. Here are a few examples of contracts that you may need to use as your business changes.
Employee Equity Agreement.
If you are considering using employee ownership as a recruitment tool to attract new staff, you will need to consider an employee equity agreement. By doing an employee stock ownership plan, you are rewarding preferred or common stock to your employees.
If you choose to do this, you will need to first put the details in writing and file documents with the state or federal officials prior to offering to your team. From there, securities lawyers will be required to help you with the fine points of what you are offering staff.
Overall, creating setup documents and equity agreements are not an easy task, therefore should be reviewed with an attorney since they run across several areas of the law.
Contracts for licensing and royalty agreements.
Some individuals may be willing to pay to use your intellectual property (IP) in their own products or services. By licensing intellectual property, this could serve as another source of revenue for your business.
It’s possible you may want to look into contracting to use other’s intellectual property. In either scenario, you will see three types of common licenses: exclusive license, sole license, and non-exclusive license.
An exclusive license gives you the right to the IP at the exclusion of any other entity. A sole license gives you exclusivity to a company but still gives you the right to use the IP. Lastly, a non-exclusive license provides each company use of the IP, however, there is the possibility of it being licensed to other parties.
Royalties are payments to an owner of intellectual property in return for use of their product. Licensing generally sets the manner and type of royalty payments as either a variable or fixed percentage.
Master services agreement.
The master services agreement (MSA) helps create a contractual association with terms and conditions that will help two parties navigate their relationship. Essentially, this agreement governs the work and can also help resolve any disputes. These agreements are commonly found with construction projects as MSAs are generally needed when companies need flexibility when it comes to timelines and decisions.
Offering documents.
If you are lucky to find yourself growing at a fast base, you might find yourself in a situation where you need additional funds. This means you may need to pitch for money. If this is the case, it is usually best to seek legal advice in order to assist you with your presentations and help you with your relationships with potential investors. A lawyer should be able to assist you with creating the following legal documents:
- Offering memorandum: This document discusses the business’ financial details, terms offered for investment, business objectives, and the risk involved with their investment.
- Term sheet: This is a non-binding agreement that explains the terms and conditions of a potential investment.
- Subscription agreement: This agreement is used when a company decides to invest and agrees to purchase a set number of shares within a company.
Now that you have a better understanding of agreements, you will be more prepared as your small business continues to grow. If you are in need of drafting one of these discussed agreements, it is always recommended to seek legal counsel for assistance.
