Starting a business is no easy feat. You need to price your product, scope the market, secure suppliers, reach your customers and sort out the legals. Ultimately, legal work is an investment in the successful growth of your business. Below, we set out the essential legal contracts your startup needs. These include contracts for:
- your workers,
- your business structure; and
- other people your business interacts with, like investors and lessors.
Of course, the content of your contracts may be different to other startups. This will depend on how you conduct your business. However, this article will provide you with a comprehensive starting point for which contracts you need to put in place.
Contracts for Your Customers
If you operate a business, you will automatically have a legal relationship with your customers. This is the case even if you do not have anything in writing. Hence, you should prepare to draft legal documents to outline what goods or services you provide and the terms and conditions on which you provide them. Such documents will also ensure your business appears reputable and professional.
What Contracts Do I Need for My Customers?
The two primary contracts you need for your customers are:
|Type of Contract||What type of businesses use this contract||Examples of types of businesses|
|Client or Service Agreements||Service-based businesses primarily use client agreements.||
|Sales Terms and Conditions||Goods-based businesses primarily use sales terms and conditions contracts.||
Many businesses will only need either a Client Agreement or Sales Terms and Conditions (but not both) depending on the nature of the business.
Does your contract require a hybrid document that covers both services and goods?
If your business provides goods AND services, you may need a hybrid customer contract. For example, suppose you are an online-based personal trainer who provides digital instruction on a one-on-one basis and sells 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.
If you are entering a client agreement, it should also cover:
- details of the scope of work;
- when you expect to deliver the service by;
- how you will price and invoice your services;
- warranties about the quality of the service; and
- how your business will resolve disputes.
Your sales terms and conditions should cover:
- the details of the product you are selling;
- how your business will deliver products and when;
- how you will be paid and when;
- warranties about the quality of the service; and
- the process for refunds and returns.
Contracts for Your Workers
If your business has employees or contractors, you should be entering into contracts with these people. These contracts are essential to clearly define what sort of assistance you will need and the terms and conditions of their service.
What Contracts Do I Need for My Employees?
New Zealand businesses can either have workers on board as employees or contractors. As an employer, you can employ workers on a fixed-term, permanent or casual basis. There are certain laws in New Zealand which govern the relationship between employers and employees. These include national standards that ensure that every employee has access to the basic entitlements. Employment law is a complex area as there are certain obligations on you as an employer to protect your employees.
Your employment agreement should cover the following:
- leave entitlements;
- hours of work;
- redundancy entitlements;
- position description; and
- dismissal and probationary provisions.
What Contracts Do I Need for My Contractors?
Contractors are different from employees because employment-related laws do not cover them. Typically they will be people that are self-employed or employed by another business. They provide their services to your business. The terms of a Contractor's Agreement are similar to that of a Client Agreement.
You need to be careful to ensure that you are genuinely using a contractor, as there are penalties involved for "sham contracting" arrangements. A sham contracting arrangement refers to a situation where you use a contractor, but they are an employee in substance.
Your Internal Legal Documents
Internal legal documents include those documents that set out how you operate and govern your business internally. The contracts your startup needs will depend on your business structure.
|Structure||Internal Legal Documents|
If you are a sole trader, it is unlikely that you will need any of these documents.
|Partnership Agreement||Partnership Agreement|
These contracts are crucial to protecting your startup against any disputes that may arise between your business partners. It also helps to ensure there is a set process for the way you make decisions and the operations of the business as a whole.
Legal Documents for External Parties
If your business interacts with a person, you will likely create a legal relationship with that person (even if you have not entered into a written contract). Therefore, you should always seek to protect yourself by entering into a written contract to clarify what your rights and obligations are in that relationship.
Here are some examples of the people your business might interact with:
- franchisors; and
If your business interacts with any of these people, it is best practice to consider entering into a written legal contract to document the relationship. This will help you avoid an expensive dispute down the track.
Before deciding to transact or interact with someone through your business, you should consider:
- if you have an existing written legal contract in place for that relationship (or if they are asking you to sign one);
- if you do not have a written legal contract in place yet, putting one in place; and
- in putting in place a written legal contract, what are the key terms you want the contract to cover (for example, price, deliverable, timing and dispute resolution process).
If you have any questions about what contracts your startup needs, contact LegalVision's contract lawyers on 0800 447 119 or fill out the form on this page.
Frequently Asked Questions
I am just a sole trader. Do I need any legal contracts?
Yes, even if you are operating as a sole trader, your business will still have legal relationships with people, like your customers and suppliers. You should enter into written legal contracts so that it is clear between you and those people, what terms you have agreed to.
Do I need a service agreement or sales terms and conditions, or both?
It will depend on the goods or service you are providing. Generally, if you are providing a service, you will need a client or service agreement. If you are selling goods, you should have in place sales terms and conditions. If you provide a hybrid service, you may need both types of agreements or a hybrid of both.
What contracts does my startup need, apart from ones for my customers and suppliers?
You generally need written contracts to document all your business relationships. For example, have you borrowed money or issued shares to investors? You should reflect both of these transactions in written contracts.
Can I save money by not having a written contract?
You may save money upfront, but ultimately not having a written contract can be very costly. It can lead to uncertainty about what you and the other party are expecting from each other. For example, if you do not have sales terms and conditions, your customers may think you are meant to deliver a different type of product or deliver it within a different timeframe. This can be costly to deal with both from a customer experience perspective and may ultimately lead to an expensive litigious dispute.