It’s officially holiday season! And in honor of the season of giving, we’re starting off the month of December with a little gift. No, it’s none of the things Eartha Kitt requests in Santa Baby (although we wouldn’t be opposed to a ‘54 convertible too, light blue!), but hopefully what we’ve got will serve you for years to come in all your world-changing business ventures.

In our e-course (launching soon so stay tuned!), we walk you through crafting the top two essential agreements you need to have in place when starting your company, namely the Operating and Partnership Agreements. We know having those tough conversations with your potential partner(s) can be stressful, but we gave you a conversation agreement to follow so that it could be as painless and productive as possible. But it doesn’t end there! In order to fully protect yourself and your biz, there are plenty more agreements you need in place depending on your business structure, industry, etc. You’ll have to decide what’s right for you, but we always believe it’s better to put more work in from the get-go and not scramble to handle it later when it’s urgent. Here are the four major agreements you might need to consider when launching the secure, profitable business of your dreams!

1. Membership Interest Assignment Agreements

If you decide to structure your company as an LLC, every member that holds ownership equity (including the partners or owner) needs to sign an agreement assigning that specified amount of equity to them and outlining the terms of their involvement. It’s the most straightforward of all these agreements, coming down to a simple 1-2 page document. You’ll just need to know the person’s full legal name, mailing address, equity percentage, company voting rights, and vesting schedule.

2. Independent Contractor Agreements

This one is nearly as straightforward, so don’t fear! If you’ll be having anyone do work for your business – especially if they’re on your internal team, but not a salaried employee – you’ll need to have a simple independent contractor agreement in place. In the early stages of your business, you likely won’t have payroll or salaries, so you’ll probably employ your team as independent contractors. We have our company set up this way, even though we’re a cohesive internal team building the business together, because it’s just so much less of a headache logistically, streamlines taxes, simplifies reporting and payments, and increases efficiency, amongst a slew of other benefits. That said, when you do have a team of Independent Contractors, your agreement becomes even more critical in structuring specific terms of “employment” and protecting your company and the hard work you do together. Some important questions to consider when crafting your ICA:

  • Will you own the work the IC creates or will they? If the company owns it, can the IC use it in their portfolio?
  • Do you permit them to do work outside the company? Are there restrictions on the type of work they do or in which industries or companies? What about working with competitors? How long after they leave the company is this restricted?
  • Is there an end date for their work with you or is it open-ended? How much notice do they have to give you if they want to cease working with you? How much notice do you need to give them if you want to stop working together? Are there any conditions or additional requirements?
  • What are your terms for confidentiality? What can or can’t they share outside the company? What happens if they breach this confidentiality?
  • What work are they responsible for? What amount of time are they required to contribute? Be as specific as possible.
  • Do you have a code of conduct or company culture they must adhere to? Perhaps a location they must be in?
  • What are the terms and details of their compensation? How and when do they get paid?
  • What happens if they royally mess up or cause major delay to projects? Do they cover the company losses or take a reduction in their fee?

3. Profit Sharing Agreements

When we formed Wildernest, we had everyone contributing their time and skills in exchange for sweat equity. But that equity payout is a future payday and only pays off if we sell our company or go public. We still wanted to reward our team for all their hard work immediately since we couldn’t afford salaries in the beginning, so we decided that in addition to ownership equity we would also award them a quarterly distribution share of our profits. And since our company financials are based on the Profit First Model (which you can learn to set up from scratch in our e-course), we knew we’d have profits in the bank to share from day one.

Unlike equity, which remains owned forever once the member has vested their interest, profit sharing is only distributed while the person fulfills their contract duties and stays with the company. Your Profit Sharing Agreement is pretty simple. Just like your Membership Interest Assignment, you simply need to know the person’s full legal name, mailing address, profit sharing percentage, and what duties they need to perform in order to earn their share of the profit. We added it as an addendum to their Independent Contractor Agreement, but it can stand alone if you prefer.

4. Client Agreements

This last one is admittedly a doozie. It’s a pretty large and complex topic, which varies greatly from industry to industry. We can advise you during a Compass Call (which you can schedule here) on what you’ll need to include and where to find a suitable template for your specific business needs. Just promise us this right now: you will not start a single hour on a single project without a deposit cleared in the bank, a full agreed-upon statement of work in writing, and a signed, full service and payment agreement in place with your client – even if that client is friend or family (actually, especially if your client is friend or family!).

Now, not all of these agreements will apply to your service or product, but DO NOT try to convince yourself you don’t need something just because it’s extra work. We know some of these agreements can feel intimidating or uncomfortable to work through, but trust us when we say that it’s SO much better to slowly and carefully work through them when you have the time and mental space rather than trying to haphazardly slap them together when you’re down to the wire. All of these agreements exist to protect you and make you successful, so they really are worth the effort.

If you want to walk through some of the absolutely essential agreements that every business needs, sign up for the waitlist for our e-course which we’re launching in January 2020 (SO SOON! YAY!) — we’ll walk you through the whole process and make sure your business is on a one-way train to success!

author

gabi defosse

Copy Director

Bali, Indonesia

After several years working in film packaging and comedy talent management in Los Angeles, then somehow transitioning into a role as a Client Executive at IBM, Gabi took over a year off, met the love of her life, traveled the world, and moved to Bali. There she met a woman who liked her extensive vocabulary and bizarre sense of humor. Now she’s a writer. Building Wildernest has given her a platform to help other women who may have taken a similarly circuitous route to figure out their true callings.

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