Reducing Risk: 3 Business Agreements to Decrease Your Liability Risk

Those new to the business world often lack the first-hand experience of initiating and building healthy business relationships. But protecting these vital relationships with carefully crafted business agreements—such as those for co-owners, suppliers and clients—is essential to growing a new business without risk of being taken advantage of or of burning valuable bridges. To decrease the risk of liability in your business relationships, here are three of the most common agreements that every business owner should have customized and ready to go.

Owner Agreements

No matter how your business is structured, you need comprehensive owner agreements if you have co-owners, founders, shareholders or partners. Mistakes get expensive if you don’t have solid agreements between the owners when something goes wrong. Indeed, you can expect 30 & 30 if you and your co-owners skip this important step. Resolving ownership disputes will cost about 30 times as much as what it would cost to do it right in the first place and the time to resolve the matter will be approximately 30 months. Litigation is a slow-moving expensive proposition – avoid at all costs.

Agreements should outline the terms and conditions applicable if one owner wants to go his or her separate way. Putting everything in writing will allow you to focus your energy on growing your business instead of on arguing about who said what, when and who was going to do what on which time frame.

Worker Agreements

Team member agreements protect both parties – you and them. These include agreements for independent contractors (think web developers and graphic designers) to clarify the terms and conditions of the work, and who owns the work they are creating as well as employees. Hiring with complete agreements – in writing – will ensure you are both on the same page regarding employment status, performance expectations and job requirements. Although you should have agreements for both employees and independent contractors, make sure you clearly distinguish who is in what role. You could face tax and other penalties if you improperly classify a worker. Classification enforcement has been stepped up in recent years by both the government and private parties.

Customer and Vendor/Supplier Agreements

Your customers make your business possible, especially when you’re just starting out. Every sale is essentially a contract between your business and your customer, so make sure you are putting the proper legal protections in place. Terms of service and privacy policies will do some of this work for you, but make sure you consult with a lawyer to determine the specific clauses you need in your client/customer agreements to provide the most protection for the relationship long-term.

Your vendors and suppliers make your customer base possible. They help you meet demand and are instrumental to your business’s viability. Your vendor and supplier agreements should provide both parties with legal protections and make sure your needs are met by the relationship. Vendor and supplier relationships can make or break a new business’s success, so make sure you fortify them with clear, detailed agreements.

If you want to protect your business interests and limit your liabilities, start by sitting down with a Creative Business Lawyer®. We are experienced in helping entrepreneurs achieve success through careful financial and legal planning. As your Creative Business Lawyer®, we can establish a sound legal, insurance, financial and tax system for your business so you can focus on increasing revenue and enjoy the benefits entrepreneurship.

This article is a service of A. J. Yolofsky, Creative Business Lawyer®. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule.