Practice Area: Business Law

Business contracts are the core of any successful business, regardless of size. They serve as legally binding agreements that protect the rights and interests of all parties. Moreover, they're critical for even the smallest business owner. So, it's worth spending the time and expense to consult a contract lawyer on your most essential business contracts.

Every contract needs to outline the terms and conditions of a business relationship. For example, it provides a framework for doing business and helps prevent disputes. In addition, contracts establish expectations, responsibilities, and obligations to provide a solid base where trust and professionalism can thrive.

Contracts are ensure that all parties are on the same page. Moreover, they also offer legal protection when conflicts arise. They also provide a means of recourse and a clear path for resolution in the event of a breach of contract.

Ultimately, contracts bring a sense of security and stability to business transactions. And that enables small business owners to focus on growth and success while avoiding legal concerns.

Types of Essential Business Contracts

As a small business owner, having solid relationships with clients, vendors, employees, and partners is critical to success. However, relying only on verbal agreements or informal understandings can leave your business vulnerable to misconceptions, disputes, and legal issues. That's where business contacts are valuable.

These agreements provide clarity, protection, and peace of mind by outlining all parties' rights, responsibilities, and expectations. It's best to consult a contract lawyer near you to address and clarify the following business contracts.

Client Business Contracts

These contracts are vital for service-based businesses, as they outline the terms of your engagements with clients. So, key elements should include:

• • Scope of work
  • Deliverables
  • Payment terms
  • Project timelines
  • Termination clauses
  • Dispute resolution options

These service contracts should also include clauses for intellectual property rights, confidentiality, indemnification, and limitation of liability.

Vendor Business Contracts

Vendor contracts spell out the terms of your relationships with suppliers and service providers. As a result, this essential business contract should include:

• • Pricing
  • Delivery schedules
  • Quality standards
  • Warranties
  • Termination

When negotiating vendor contracts, get several bids. You should also consider long-term agreements for better pricing.

Employee Offer Letters

An employment offer letter defines work terms. Including one with any new hire is vital, regardless of position.

Key elements include:

• • Position title
  • Start date
  • Compensation package
  • Benefits
  • Working hours
  • Probation period, if applicable

You'll also want to mention any considerations in this essential business contract, such as background checks or references. Additionally, clarify the at-will employment relationship unless specific employment terms or agreements exist. If you have an employee handbook, you must also ensure they receive and sign a copy.

Partnership Agreements

An operating agreement is crucial if you're entering into a partnership. Consequently, this essential business contract must include these elements:

• • Capital contributions
  • Profit distribution
  • Decision-making processes
  • Roles and responsibilities
  • Dispute resolution methods
  • Withdrawal from Ownership
  • Buyout terms

Including dispute resolution and termination clauses provides a framework for resolving conflicts with business partners.

Non-Disclosure Agreements (NDAs):

NDAs protect your sensitive information when sharing it with external parties, such as contractors, investors, or potential partners. Key items include:

• • Definition of confidential information
  • Purpose of disclosure
  • Obligations of the recipient
  • Duration of the agreement

To enforce NDAs, clearly identify what represents a breach. You can consult with a contract attorney to present remedies if violations occur.

You might also consider other employment agreements like restrictive covenants relating to non-solicitation of customers, employees, or vendors.

Independent Contractor Agreements:

If your business engages independent contractors, it's crucial to have an explicit agreement in place. Generally, key provisions with this type of contract include:

• • Description of services
  • Compensation terms
  • Project timelines
  • Intellectual property rights
  • Termination clauses

You should specify that the contractor is not an employee and clarify the contractor's responsibility for taxes and benefits. In addition, include confidentiality and non-compete clauses to protect your business's sensitive information. A release of liability may also be prudent.

Drafting and Enforcing Essential Business Contracts

With templates on the internet, you can draft these essential business contracts yourself. Unfortunately, that's not always the best course of action. So, seeking legal advice ensures that your agreements meet state and local laws and protect your interests. An experienced contract lawyer can provide valuable insights and tailor contracts for your business.

Once complete, ensure that all parties sign the contracts. Keep copies of completed contracts in physical and digital formats. Maintaining proper records helps you reference agreements when needed. It also helps enforce the process if disputes arise.

Contracts need enforcement to be effective. So, regularly monitor compliance with contractual obligations, such as payment schedules and performance milestones. If a breach occurs, consult your contract attorney to understand the available remedies. They'll advise you on the steps to take to protect your rights.

Contract Lawyers Serving Bucks and Montgomery Counties

Our law firm has offices in Norristown and Doylestown, PA. Our business and contract attorneys help companies of all sizes and types, from small main street businesses to multi-national companies. Plus, our broad offering of legal services ensures you'll have experienced counsel regardless of your legal concern.

Call our law offices for any business concern - we are here to help.

 

Starting a business can sound like a pretty daunting task. It's true, there are many things to consider such as how your business is structured, contracts, and insurance. Below is a quick breakdown of specifics you will need to start a business. For this example, we have consulted with a Pennsylvania business attorney with regards to starting a business in the commonwealth state.

First and foremost you need to:

Choose the right business structure

Selecting the appropriate legal structure for your business is crucial for minimizing risk and liability. In Pennsylvania, common business structures include sole proprietorships, partnerships, limited liability companies (LLCs), and corporations. We've gone more in depth on those structure in our Legal Handbook for Starting and Running a Small Business.

Essentially, each structure has its own advantages and disadvantages, so choosing the correct structure is paramount. If you're still not sure, consult with a business attorney.

Develop sound contracts

Written contracts are essential to protecting your business interests and minimizing legal disputes. Whether you're entering into an agreement with a supplier, vendor, customer, or employee, it's important to have a clear, comprehensive contract that outlines the terms of the agreement, including payment terms, delivery dates, and dispute resolution mechanisms.

Here are 3 of the more important contracts to consider:

Partnership Agreement: If you are starting a business with one or more partners, you may need a partnership agreement that outlines each partner's roles and responsibilities, profit-sharing arrangements, and how decisions will be made.

Operating Agreement: If you are forming a limited liability company (LLC), you may need an operating agreement that outlines how the company will be run, including how profits and losses will be shared, how decisions will be made, and what happens if a member leaves the company.

Exit Strategy: A business exit strategy outlines how a business owner or investor intends to exit or sell their ownership stake in a business. It’s essentially a roadmap that lays out the steps and actions necessary to leave a company and realize the maximum possible value of the business. We have a whole chapter dedicated to it in our handbook.

Protect your intellectual property

If your business relies on products or services that are distinct to your operation, such as trademarks, patents, or copyrights, it's important to take steps to protect that property.

And with the advent of AI technology, it's appropriate to wonder whether certain intellectual property laws pertain to ideas that may have been discovered using it. Below is a quick breakdown:

Can I trademark or copyright ideas that came from ChatGPT or Open AI?

You may think that ChatGPT just gave you a one in a million business idea, but think again. ChatGPT or a similar open AI platform is not capable of inventing new ideas or concepts on its own.

Why is that?

Open AI was created to process and generate responses based on the input provided by the user. Therefore, any "original ideas or concepts" that may be expressed through AI responses are ultimately the property of the person that provided the input.

If you, as the AI user, have created an original idea or concept that you would like to protect, you may be able to obtain intellectual property protection through a trademark, or copyright, depending on the nature of the idea or concept. However, it's important to note that obtaining intellectual property protection can be a complex process and requires meeting certain legal requirements. We would recommend consulting with an IP attorney who is experienced in intellectual property law to determine the best course of action for protecting your idea or concept.

Comply with regulations

As a business owner, you must comply with a wide range of federal, state, and local regulations, including tax laws, employment laws, environmental laws, and more. Noncompliance can result in costly fines and legal penalties, so it's important to understand your obligations and take steps to ensure compliance.

What are the most important regulations to consider when starting or running a business in Pennsylvania?

The best advice would be to consider every business regulation as important, but of course, some could be considered more important than others. For example:

Businesses need to obtain various tax IDs, such as an Employer Identification Number (EIN) or a sales tax license. Business owners should consult with a tax professional to ensure compliance with tax laws and to minimize tax liability.

If your business has employees, you must comply with Pennsylvania-specific employment laws such as the Pennsylvania Minimum Wage Act and the Pennsylvania Human Relations Act. Federal laws that PA business owners need to adhere to include the Americans with Disabilities Act (ADA), Fair Labor Standards Act (FLSA) and the Family and Medical Leave Act (FMLA). We've included links to each act above.

Business licensing and registration

Depending on the nature of the business, Pennsylvania may require business owners to obtain certain licenses or permits, such as a local business license or a professional license.

What are the specific business licenses and/or permits I need to get to start or run a business in PA?

It all depends on the nature of your business, your location, and other factors. However, here are some common licenses and permits that many businesses in Pennsylvania may need to obtain:

Pennsylvania Business License: This is all dependent on your business structure. You can read more on the specific structure best suited for your business here.

Local Business License: Some cities or counties in Pennsylvania may require businesses to obtain a local business license. Check with your local government to determine whether this is required for your business.

Below are a few cities in Pennsylvania that require a local business license:

Philadelphia: All businesses operating in Philadelphia must obtain a Commercial Activity License (CAL).

Pittsburgh, Allentown, Erie, Reading: Businesses operating within these cities must obtain a Business Privilege License (BPL).

Professional or Occupational License: Some professions or occupations in Pennsylvania may require this license. These may include doctors, lawyers, accountants, and others.

Data privacy laws

With the increasing prevalence of data breaches and cyber attacks, Pennsylvania businesses must comply with data privacy laws to protect sensitive customer information. The Pennsylvania Data Breach Notification Act requires businesses to notify customers in the event of a data breach.

There have been several businesses in Pennsylvania that have experienced data breaches and had to notify their customers. One of the most egregious examples came from a 2014 breach at the University of Pittsburgh Medical Center.

Essentially, UPMC experienced a data breach in which the personal information of approximately 62,000 employees, including names, birth dates, Social Security numbers, and tax information, was stolen. UPMC notified affected employees of the breach and offered free credit monitoring and identity theft protection.

In late 2018, the Pennsylvania Supreme Court decided that employees may sue employers for the release of stolen confidential employee data. The Court’s decision in the Dittman vs. University of Pittsburgh Medical Center, allowed UPMC employees to bring a class action lawsuit for negligence. Read more about the fallout and impact written by attorney Thomas D. Rees here.

Talk with a business attorney who can give you the right answers

It's important to note that this is not an exhaustive list of regulations that may apply to your business. Depending on the nature of your business, there may be additional regulations that you must comply with. Working with an experienced business attorney and other professionals can help ensure that you are aware of and compliant with all relevant regulations.

The above information is not to be taken as legal advice.

Starting your own business can be rewarding and energizing. And yes, it can be a bit stressful. You have numerous essential decisions to make during the critical start-up phase. One of the most significant decisions is choosing a business structure.

It’s best to seek counsel from an accountant, business counselor, and business lawyer when deciding. Your business structure impacts day-to-day operations, taxes, personal liabilities, how you raise money, and more. So when choosing a business structure, do so wisely.

Factors That Determine Your Business Structure

You can choose several options when setting up your business, including a sole proprietorship, partnership, Limited Liability Company (LLC), or corporation.

The one you select depends on several factors:

• Flexibility: Determine your expectations for business growth and ensure your structure provides ample flexibility to accommodate that growth. Generally, an LLC offers the most flexibility for growth potential.
• Liability: You’ll need to examine the risks and your potential personal liability. You’ll also need to consider insurance, credit, and assets. For example, corporations offer the most significant liability protection.
• Taxes: Sole proprietors, partnership owners, and S corporations classify income as personal income, while a C corporation separates business income from personal. Your structure impacts tax burdens because business income is taxed differently than personal income.
• Operating Costs: Keeping updated records and paperwork can be costly, so you will also want to factor in these expenses. Sole proprietorships are usually the business type requiring the least amount of time and money invested in recordkeeping.
• Fundraising: Your structure dictates how you raise funds. For example, sole proprietorships typically can’t offer stock, whereas corporations can.
• Control: A sole proprietorship is typically the best route if you want complete control over the business. However, you also assume total liability for potential lawsuits, taxes, and losses.

If you need more information and guidance on the factors impacting choosing your business structure, talk to a business formation attorney in our Bucks County or Montgomery County law offices.

After Choosing Your Business Structure, Can You Change It?

The answer is yes. Actually, it happens quite often. For example, many businesses change from a simple structure like a sole proprietorship or partnership to a more complex structure like an LLC or corporation.

A business structure change can happen for any number of reasons:

1. Personal Liability: As businesses grow, so do the risks. Consequently, the owner of a sole proprietorship may want to remove their liability by moving to an LLC or corporation.
2. Taxes: Generally, tax considerations are the prime motivator for a business structure change. For example, the IRS views businesses as partnerships or corporations. The latter pays taxes on profits before distributing those profits to shareholders. However, the former is a pass-through entity where profits and losses go through the individual partners and require reporting on tax returns.
3. Attracting Investors: Venture capitalists and angel investors prefer investing in C Corporations for tax purposes. In addition, a more formal structure like a corporation or LLC establishes the business arrangement upfront and what the options are.
4. More Employees: As your employee numbers increase, liabilities attached to them do as well. So moving from a sole proprietorship to an LLC or C Corporation protects you.
5. Financing: Many banks want to see a more formal business structure before providing funding.

Changing your business structure differs based on your initial business setup. For example, moving from a sole proprietorship to an LLC, partnership, or corporation requires registration with the state where you conduct business.

You’ll want to create an LLC operating agreement when moving to an LLC. Moving to a corporation requires selecting officers, a board of directors, and shareholder agreements.

You’ll want to involve a business lawyer to help you sort through the details and ensure you manage all the requirements for the business structure change.

What are the Types of Business Structures?

How to form your business legally is controlled by the law of the state where you create your business. Your decision must consider liability, taxation, and recordkeeping.

The most common forms of business structures are:

• Sole Proprietorships
• Partnerships
• Limited Liability Companies (LLC)
• Corporations

So, let’s take a closer look at which to select when choosing a business structure.

Sole Proprietorship

Generally, this option is the most simple and most common. With a sole proprietorship, your business is unincorporated and run entirely by one person – you as the owner. Although this structure entitles you to all the profits, you are also individually responsible for all debts and liabilities.

You obtain the necessary licenses and permits for your business when operating as a sole proprietorship. However, they vary by state and industry. Also, if you operate under a business name, you may legally have to file for a fictitious name.

In many states, such as Pennsylvania, registering a fictitious name does not protect the name or give you any right to block others from registering the same fictitious name. Instead, it serves only as a notice to the public that you are trading under that name. In addition, you must file with the IRS for an Employer Identification Number (EIN) if you hire employees.

Because you are the sole owner, your business entity is not taxed. Instead, you report the income and losses on Schedule C to Form 1040.

Partnerships

A business is legally structured as a partnership when two or more people share ownership. As a result, each partner contributes to aspects of the company, and both share liability and income.

In choosing this business structure, developing a legal partnership agreement is essential to document how you will make future decisions. In addition, the contract should include terms for dissolving the partnership if necessary. Although a legal agreement is not mandatory, it’s strongly encouraged since operating a business without one is risky.

If you choose a partnership structure, you can form a general partnership. Consequently, everything is divided equally among the partners. On the contrary, a limited partnership allows a partner to have limited responsibility.

You can register partnerships with the state with an established business name and all licenses and permits. The business must also register with the IRS and file an “annual information return” to report its income and losses.

The company itself does not pay income tax. Instead, profits and losses are “passed through” to the partners.

Limited Liability Companies

An LLC, or Limited Liability Company, is a legally recognized business structure combining corporate and partnership aspects.

To form an LLC, you must first choose a name that complies with state rules. The next step is filing articles of organization with your state’s business filing office, typically with the Secretary of State. These are generally short and simple documents that take only a few minutes to fill out.

After filing with the state, it’s imperative to work with a business lawyer to create an LLC Operating Agreement that sets legal rules for the ownership and operation of the company.

Finally, make sure to obtain all licenses and permits required. Also, some states may ask you to publish notice that you intend to form an LLC in a local publication.

Corporations

Becoming a legally recognized corporation is more complex. First, states determine the formation of corporations. In addition, corporations pay corporate income tax at the federal and state levels.

Certain small corporations can elect Subchapter S status and be taxed like a partnership, avoiding corporate taxes. In that case, profits flow to the shareholders as ordinary income.

In a corporation, the business becomes a corporate entity, and the corporation is taxed and held legally liable for all business responsibilities.

The business first needs to choose a corporate name not used by another corporation or limited liability company and prepare and file articles of incorporation to become a corporation in the Commonwealth of Pennsylvania.

Pennsylvania corporations also need an agent for service of process in the state that agrees to accept legal papers on the corporation’s behalf. However, a corporation with a Pennsylvania address need not have a separate agent to service the process.

To complete the legal requirements of forming a corporation, you must publish legal advertising, create corporate bylaws and hold an organizational, board of directors-style meeting.

You can learn more by reviewing A Guide to Business Registration in Pennsylvania.

Which Business Structure Do I Choose?

This answer depends on your business, current ownership structure, and goals. You should assess your individual needs and choose the proper business structure.

It’s best to talk with business experts and a business lawyer near you to guide your selection. They can also ensure you complete any required paperwork and file it appropriately.

U.S. News cited our law firm as a “Best Law Firm.” So, you can depend on our attorneys to provide the best advice, particularly as a Pennsylvania Business. Our firm can also support you with various legal services, including business litigation, intellectual property, restrictive covenants, and workers’ compensation.

The information above is general: we recommend you consult an attorney regarding your circumstances. This information does not represent legal advice or a substitute for legal representation.