Every business owner or leader has heard the advice: “get it in writing.” But in my years of advising companies across industries and deal sizes, I’ve seen how often that advice goes unheeded or how the “writing” turns out to be a template that protects the wrong party or doesn’t mitigate the actual risk. Strong contracts do more than check a box. They protect a company’s interests, clarify expectations, and provide a roadmap when things don’t go as planned. By implementing comprehensive, carefully structured contracts from the start, new businesses position themselves for greater stability, reduced legal exposure, and long-term growth.
Business Formation Agreements
From day one, a clear business formation agreement sets the rules for how the company will be managed and establishes the rights and obligations of its owners. Formation documents vary based on the business structure. Generally, when multiple entrepreneurs launch a business together, they will have a founder’s agreement; partnerships will have a partnership agreement; LLCs will have an operating agreement; and corporations will have a shareholder agreement. Just as no two businesses are exactly alike, formation documents should be unique to each company. But each should detail ownership percentages and initial capital contributions while addressing how profits and losses will be shared, what the responsibilities of the owners are, who gets to make decisions and how they will be made, and how disputes will be resolved. The contract should also set procedures for when an owner wants to or has to leave the business, as well as procedures for adding new owners. One frequently neglected area? Intellectual property ownership. Founders should clearly establish that the company (not individual owners) owns any business-related inventions, software, trademarks, and other intellectual property.
Employment/Independent Contractor Agreements
Whether a business hires employees or engages independent contractors, a written agreement is a proactive way to define expectations while reducing legal risk. Employment agreements and offer letters should clearly define compensation, benefits, job responsibilities, confidentiality obligations, intellectual property ownership, grounds for termination, and procedures for resolving disputes. If restrictive covenants are legally permissible and non-competition or non-solicitation concerns apply, include them. For independent contractors, the agreement should establish project scope, compensation, payment terms, and deliverables, while making clear the contractor is not an employee, which helps mitigate misclassification risk. One provision that’s frequently overlooked in both contexts: ownership of work product. The contract should state that anything created for the business belongs to the company.
Client or Customer Agreements
Every time a business provides a service or sells a product, it’s entering into a contractual relationship with a customer, whether the business owner realizes it or not. A well-drafted customer agreement establishes the rights and responsibilities of both sides, improves transparency, and reduces the risk of disputes stemming from differing assumptions. Before a purchase or service begins, the customer reviews and accepts the agreement, either by signing it or clicking a button, which creates a legally binding understanding. At a minimum, customer agreements should include a description of what’s being provided, payment terms, delivery or performance expectations, cancellation and refund policies, warranties, a limitation of liability clause, and dispute resolution procedures. Whenever customer information is collected or processed, include privacy and data protection provisions as well. For service agreements in particular, the scope of work deserves close attention: lack of detail over deliverables and responsibilities is one of the most common sources of disputes I see.
Vendor Agreements
Since nearly every business relies on third parties for products, services, or equipment, vendor agreements are also an essential part of a strong legal foundation. Some business owners will sign a vendor’s standard contract without negotiation or legal review. But this is unwise, since vendor-drafted agreements are designed to protect the vendor’s interests first.
A quick example: I recently helped the son of a friend settle a dispute with a marketing company. He had “unknowingly” signed a low-dollar, non-cancellable agreement, and when he tried to walk away (having provided nothing and received nothing), the company filed a claim against him for the $6,000 owed for the full term. When I read the agreement, the obligation was clear as day. But he hadn’t appreciated what he was signing before he signed it. Had I charged him my full rate, his costs to defend and settle would have far exceeded what a quick pre-signing review would have cost. It was an expensive lesson and a good reminder that the termination clause is one of the most important provisions in any vendor agreement.
Vendor agreements should also include pricing and payment obligations, delivery schedules and deadlines, quality standards and performance metrics, service level commitments, indemnification provisions, insurance obligations, dispute resolution procedures, and more. Businesses should understand exactly how and when they can exit the relationship if they are unhappy with it for whatever reason, or if their circumstances change. Additionally, when vendors handle sensitive customer or company information, provisions concerning data privacy, cybersecurity obligations, and AI-related risks warrant careful attention.
Non-Disclosure Agreements
For many businesses, proprietary information is among their most valuable assets. Trade secrets, customer lists, pricing strategies, business processes, and other confidential information provide a significant competitive advantage, and those assets falling into a competitor’s hands could cause real financial harm. Non-disclosure agreements (NDAs) protect proprietary information when it must be shared with employees, contractors, vendors, investors, and others.
I’m often surprised when speaking with business owners and leaders, whether seasoned or not, about a deal and I ask about the NDA that preceded their earliest discussions with the new business partner or counterparty (the discussions that inevitably divulge more detail than any party intended). Too often, the answer is: (i) “nothing has been signed yet,” (ii) “it was pretty standard so we just signed their template as provided,” or (iii) increasingly, “I ran it through ChatGPT and it said it looked pretty good.” That last one always prompts my follow-up question: great, for who? The reality is that NDAs are often the first contract in any business relationship, and getting them right, or at least understanding what’s being agreed to, sets the tone for everything that follows.
The NDA should detail what information qualifies as confidential, permitted uses of the information, and available remedies for unauthorized disclosure. It’s important to carefully tailor the NDA to the business’s needs, as overly broad agreements can be difficult to enforce while overly narrow ones can leave gaps in protection. While an NDA cannot guarantee that confidential information will never be misused, it creates enforceable obligations and demonstrates that the company takes protection of its proprietary information seriously.
Building a Strong Legal Foundation
Strong contracts allow businesses to protect their interests while managing risks and preserving important relationships. As outside general counsel, I spend a significant amount of time drafting and reviewing contracts for clients across a range of industries and deal sizes. Every transaction has its own nuances and requirements, and my goal is to ensure that each agreement accurately reflects the business purpose while properly mitigating potential risks. That said, my job isn’t always to fully edit every contract. Sometimes it’s simply to make my client aware of the risks so they go in with open eyes, understanding the possibilities before they sign.
Establishing well-thought-out agreements early and understanding what’s being signed before signing will help set a business up for success. And as the business grows and regulations evolve, regular contract reviews and updates are essential to ensuring the agreements continue to support the company’s objectives. The cost of a quick review before signing is almost always less than the cost of cleaning up a problem after the fact.
Victoria R. Husband is a partner in the General Counsel and Corporate practice groups at Potomac Law (PLC). Based in Austin, Texas, Vicky guides businesses through complex regulatory landscapes while enhancing operational efficiency and mitigating legal risks.
