What legal contracts do I need in my business?

Starting a business is no easy feat. You need to consider and research price modelling, the market, business development and legal issues. Ultimately, legal work is an investment in the smooth running and growth of your business. Below, we set out the essential legal contracts your business needs when setting up, including contracts for:

  • your clients or customers;
  • employees;
  • your business; and
  • external parties.

Keep in mind that the content of your legal contracts will differ because of the unique way you conduct your business and whether you sell services or goods. Nonetheless, this article will provide you with a comprehensive starting point.

Client and Customer Legal Documents

Regardless of whether you sell goods or services, if you are operating a business, you will be establishing a legal relationship with your clients or customers. This legal relationship exists, even if you do not have a written contract. The automatic creation of a legal relationship is why you should draft legal documents to outline what goods or services you provide and the contract terms at which you provide them. Written contracts also help ensure you develop a trusting relationship with your clients or customers, who now more than ever expect professional standards when using services or purchasing goods from businesses.

The two primary client and customer legal documents are as follows:

  1. Client Agreements
    Client agreements are primarily used for service-based businesses, including:
  • electricians;
  • building contractors;
  • designers;
  • architects;
  • consultants;
  • HR agencies;
  • massage therapists;
  • marketers; and
  • real estate agents.
  1. Sales Terms and Conditions
    Goods-based businesses primarily use sales terms and conditions, including e-commerce stores, retail stores, and manufacturers. Many businesses will only need one of the documents above, depending on the nature of the business. However, many businesses may require a hybrid legal document that would cover both the services and goods provided.

For example, suppose you are an online-based yoga instructor who provides digital instruction on a one-on-one basis. Additionally, you also sell pre-recorded web-based video programs. In that case, your terms and conditions will likely include a mixture of terms and conditions used for goods and services.

What Should I Include in the Legal Documents?

Client Agreements and Sales Terms and Conditions should outline details of the goods or services you are providing and how you will be providing these goods or services.

Some common clauses in Client Agreements include:

  • details of the scope of work;
  • timeline;
  • pricing and invoicing;
  • indemnity and liability;
  • warranties and consumer guarantees; and
  • dispute resolution.

Some common clauses in Sales Terms and Conditions include:

  • product details;
  • delivery (particularly for online-based businesses or businesses that sell big-ticket items such as fridges, furniture, etc.);
  • payment terms;
  • consumer warranties and Australian Consumer Law provisions; and
  • refunds and returns.

Another important part of the Client Agreement and Sales Terms and Conditions is including a section on any substantially prejudicial terms. You will need to spell these out at the top of the contract if:

  • you supply goods or services to consumers in New South Wales; or
  • your goods or services will affect a person or result in loss or damage in New South Wales.

Workers’ Legal Documents

Many small businesses will start up as a one-person operation. So the key legal contracts they will need are those that focus on the clients and customers they are serving. However, suppose you are a business that requires employees early on. In that case, it is crucial to determine what sort of assistance you will need and the terms and conditions at which a worker will provide their services to you.

Employees
Commonly businesses can either have workers on board as employees or contractors. As an employer, you might employ your workers on a fixed-term, permanent or casual basis. The Fair Work Act (2009) (Cth) (the Act) governs the employment relationship. It includes the National Employment Standards that ensures every employee has access to the basic entitlements. Additionally, employment law is a complex area that protects employees. Consequently, you have several legal obligations as an employer, including tax and superannuation.

An employment contract typically includes clauses about:

  • remuneration;
  • leave entitlements;
  • hours of work;
  • redundancy entitlements;
  • position description; and
  • dismissal and probationary provisions.

Contractors
Independent ontractors are typically individuals providing their services to your business. They differ from employees as the Fair Work Act does not cover them. Here, it is crucial to note that you need to ensure that you are genuinely using a contractor, as there are penalties for “sham contracting” arrangements. A sham contracting arrangement refers to a situation where you use a contractor, yet the nature of their engagement is that of an employee. The standard terms of a Contractor’s Agreement are similar to that of a Client Agreement. However, you should provide the agreement to your contractor.

Your Internal Legal Documents
Internal legal documents refer to those dictating how you operate and govern your business internally with your business partners. The legal document you will need depends on your business structure.

If you are a sole trader, it is unlikely that you will need any of these documents. However, if you are operating your business as a partnership, you will need a partnership agreement. Finally, if you are operating as a company, the document you will need is a shareholders’ agreement.

These documents are crucial to protecting you against any disputes that may arise. It also helps to ensure you have a process set up for how your business makes decisions and conducts its operations. Commercial law can be a complex area to navigate. Hence, it is best practice to seek legal advice for your business’ certain circumstances and what legal contracts you need.

Legal Documents for External Parties
Even if you are a sole trader, it is unlikely that your business runs in isolation. There are many possible legal relationships that your business forms which you can protect through legal contracts, including:

  • investors;
  • financiers;
  • manufacturers;
  • distributors;
  • suppliers;
  • franchisors; and
  • lessors.

Key Takeaways

You should cover any legal relationship that you create with an external party through the appropriate legal contract. In some cases, the law requires a legal contract, such as renting premises or being a franchisee. It is crucial that you think about these legal documents and understand the legal relationships you are creating. This is the case with all your business relationships, such as with your:

  • clients;
  • workers;
  • internal business team; and
  • external parties.

Additionally, it is a good idea to draft the entire contract in writing, as it is difficult to rely on verbal agreements if a dispute arises.

This article was first published by LegalVision

Frequently Asked Questions
Does my business need legal contracts with its clients or customers?
Yes. Your business should seek to draft legal contracts with all those it has a business relationship with. This includes contracts with your clients or customers, plus your employees, internal business relations and external parties.

What is the difference between an employee and a contractor?
An employee generally works for your business on a fixed-term, permanent or casual basis. The Fair Work Act governs the employment relationship and that ensures every employee has access to the basic entitlements. Conversely, contractors are typically individuals providing their services to your business. They differ from employees as the Fair Work Act does not cover them.