If you are an entrepreneur, have your own start up business in Massachusetts, or have been operating a Massachusetts business for a long time, you will come across a number of different types of contracts that you may use in your business. Most of these business contracts should adhere to Massachusetts laws which govern each type of contract. Where Massachusetts law is lacking, sometimes common or case law are controlling. In any case, it is in an attorney’s wheelhouse that knowledge of these contracts lies. Below, I’ve compiled a list of the most common business contracts used in Massachusetts businesses.
Nondisclosure Agreement
If your business has proprietary information, information that for any reason must not be shared with competitors, you will want to consider a nondisclosure agreement for those individuals and companies with access to that information. It is not always clear that information is proprietary and needs to be guarded. For example, while a manufacturer of a car would clearly have proprietary information that it would not want its competitors to acquire, what about a small grocery store? Does a small grocery store or market really have any information that should be protected by a nondisclosure agreement? Yes, perhaps the methods that managers use to keep staff happy and engaged with the employer is unique to that store. The owner of that store would not want his manager employees sharing these management techniques with other competing grocery stores as this act may steer current and future human resources away from his operation. One way to manage proprietary information is with a nondisclosure agreement or NDA.
A NDA Does not need to be Cost Prohibitive?
The cost of drafting an NDA will vary by attorney and by the factors that need to be considered in a given business. For a small business with relatively few employees and few moving parts, a non-disclosure agreement can probably be drafted for under $300 to $500. For more complex operations where the attorney will need to be brought up to speed with multiple relationships between employees, vendors, partners, and other players, the cost would necessarily rise proportionally.
Shareholder’s Agreement
For Corporations a shareholder’s agreement is a document which is typically drafted in the beginning days of the corporation. This shareholder’s agreement indicates the ability of a shareholder to transfer shares, to vote for key positions in the corporation, a description of the board of directors and roles of officers and board members, the frequency of shareholder’s meetings, and other key aspects of the rights of shareholders within the corporation.
Operating Agreement
For single and multi-member Limited Liability Company’s (LLC’s), an operating agreement is typically drafted by an attorney early in the formation of the company although sometimes this document is overlooked and added later. An operating agreement establishes the purpose of the business acting as an LLC, the type of LLC (manager managed, member managed), how capital has been contributed and will be contributed to the LLC, names a registered agent, describes the management structure of the LLC, discusses distribution of profits and losses, and much more.
Partnership Agreement
Where the business is neither one of the more common business types in Massachusetts, an LLC or Corporation, a partnership agreement may be necessary to clearly detail the authority and responsibilities of the partners. Similar to an operating agreement a partnership agreement will clearly indicate each partner’s capital contributions at the beginning and ongoing, explain how profits and losses will be allocated, discuss ownership interest, and how the partnership is to be dissolved among other important matters.
Indemnity Agreement for a Business
Sometimes an indemnity clause, or “hold harmless” clause will be inserted into a shareholder’s agreement or other similar contract. Other times, it is necessary to have a separate contract which specifically indemnifies the business against the actions of a vendor, supplier, shipper, or other business or individual. The goal of this type of business contract is to prevent the individual or business that is working with a company from claiming in court that the company is responsible for the actions of the individual or business.
Employment Contract
While not always appropriate, there are times where a specific contract should be drafted between a business and an employee. At other times, an employee’s attorney (should a claim ever be levied against the employer) will claim that a contract was produced by the documents used at hiring: orientation documentation, payroll documentation, and others.
Because Massachusetts is an at-will employment state, meaning that an employer may fire an employee without cause, it is often assumed that a contract is not necessary or even non-existent between employer and employee. In Massachusetts, the issue of whether or not to generate a separate employment contract is thorny and highly dependent on the business.
Equipment Lease
Are you currently leasing an office printer, copier, or other machinery needed for the operation of your Massachusetts business? These documents are often rife with fine print, “devil is in the details” type of language that is best reviewed by the attorney you use for your business. It is not uncommon for a lease to have very specific instructions as to how to cancel the lease. Failure to follow these instructions to the letter can often result in a lease not being cancelled and the business still owing under the lease. Have such a document reviewed by an attorney, preferably before signing, but at least to ensure that you know how can get out of the lease.
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