August 2, 2016 By Suzanne Robertson

Generally, small business owners are not contract specialists. However, contracts are important to understand and implement when setting up and running an enterprise.

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There are lots of good resources out there that can help guide small business owners with free legal information. Check out for contract templates. helps consumers and small businesses find answers to their everyday legal and business questions.

Here are five contracts that most small business owners need to have on file. Always consult a legal professional if you have questions.

1. NDA or Non-Disclosure Agreement

This agreement simply binds someone to keep a secret. NDAs are vital if you are in a highly competitive market. An NDA can be unilateral (one-way) or mutual (two way). Small businesses are founded on great ideas and an NDA is one way to make sure your ideas aren’t used by another business.

Whitney Weiss, co-founder of Weiss Watch Company, requires every employee to sign an NDA. She says, “An NDA is important to our business because we are currently creating proprietary processes for machining and developing watch components.”

According to small business development organization SCORE, if your company’s private information somehow gets in danger of leaking out, the NDA can be used to ask the courts to put a stop to it. Or, if your trade secrets do wind up in the wrong hands, this document can be used to seek damages if you want to go that route.

You can create a free Non-Disclosure Agreement on the Rocket Lawyer website.

2. Non-Compete Agreement

According to Investopedia, a Non-Compete Agreement is between two parties, typically an employee and employer. When signed, the employee agrees not to use information learned during employment in subsequent business efforts for a set period of time. However, the enforceability of a non-compete agreement varies from state-to-state. California, for example, prohibits them entirely.

According to the Small Business Administration, non-competes can also come into play when you sell your business, particularly if you have plans to stay in the same industry. These agreements protect the new business owner against you opening a similar business for a certain amount of time, usually in the same geographic area.

For more information, read Eight Reasons Small Businesses Should Use Non-Compete Agreements from legal expert firm Fisher Phillips.

3. Sales Contract

A written sales contract will help you and the other party better understand the agreement you’ve entered into together. Having a contract in place can also minimize the chances of a dispute later on. Contracts will vary to reflect the details and intent of the parties. According to the FindLaw website, sales contracts don't always need the oversight of an attorney. They have a sample sales contract you can review here.

4. Independent Contractor Agreement

If you hire outside workers, like a social media manager or a bookkeeper, you need to have an Independent Contractor Agreement in place. This document is just your agreement to pay for the services of another for an agreed upon price. A simple oral agreement could lead to payment misunderstandings and get you into trouble. The SBA has a helpful article with additional information here: Hire a Contractor or an Employee?

Review an Independent Contractor Agreement here.

5. Employment Agreement

According to Entrepreneur, the formal definition of an Employment Agreement is as follows:

An agreement entered into between an employer and an employee at the time the employee is hired that outlines the exact nature of their business relationship, specifically what compensation the employee will receive in exchange for specific work performed.

This isn’t a document you can just grab off the Internet – employment agreements can be tricky depending on the type of employee you are hiring and the laws of the state where your business operates. Always consult an attorney about what to include in this agreement and what to avoid.