12 Most Common Contract Types for Small Businesses (Mini-Series, Part 2 of 5)
Post #57: Make sure you have the right agreement for your needs.
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Did you know…?
📌 50% of small businesses have experienced IP theft.
📌 10% of small businesses face employee litigation each year.
📌43% of cyberattacks target small businesses.
📌 60% of small businesses encounter disputes with vendors or suppliers.
📌 Contract disputes alone can account for up to 9% of a company’s annual revenue.
(source)
Welcome to Day 2 of my Contracts 101 mini-series for freelancers, consultants, and small business owners.
If the word “contract” makes you feel overwhelmed — or like it’s something only lawyers and big companies need — you’re in the right place.
This series is designed to remove the fear and formality from contracts.
Contracts are about clarity, protection, and professionalism, and you deserve all three (even if you’re just getting started).
👉 Also, be sure to check out these resources:
Bootstrap Your Business Workflow - a step-by-step guide with the links to all of the top daily posts that walk you through the process from scratch
BYB Book Recommendations - a collection of the best business books to help you on your entrepreneurial journey
BYB Alerts & News - urgent updates for self-employed and business owners - delivered to your inbox - so that you can be more prepared
BYB Documents - a repository of guidance for important business documents with instructions and guides to use them in your self-employment journey
📌 Caveat Emptor
As a business owner, I have had a lot of exposure to business-related contracts, and have learned many lessons along the way (too often by way of hindsight).
However, please keep in mind as you review this newsletter that:
I’m NOT an attorney, arbitrator, or mediator, and I have no formal legal education.
This is NOT meant to serve as legal advice or legal guidance.
I am only sharing my experience — your circumstances and needs may differ.
This newsletter is based entirely upon my experience and research as an entrepreneur.
If you are seeking guidance with any contract-related or legal decision, I encourage you to talk with a legal expert, or contact an arbitration and/or mediation service provider in your area for guidance with your unique situation.
Knowing Which Contract to Use
If you’re running a small business — whether as a freelancer, consultant, or agency owner — contracts aren’t just paperwork.
They’re protection.
They define relationships, outline expectations, and help you avoid messy misunderstandings that can cost time, money, and credibility.
As a business owner, you should become familiar with the most important contract types that you are likely to need or encounter.
Below, you’ll find an introduction to the 12 most common contracts, grouped by when and how you’d typically use them.
💡 Tip: this is not a comprehensive list of possible contracts you might need, but a place to start so that you can begin your own research or at least have a better foundation when you talk with an attorney.
When You’re Working With Clients
These contracts clarify the scope of work, expectations, and payment terms when you’re hired to provide a service.
1. Service Agreement
The bread and butter of client work, this contract type outlines what you’re doing, how much it costs, when it’s due, and what happens if things go sideways. It’s essential for freelancers, consultants, and agencies.
💡 Tip: Always define deliverables, timelines, and payment terms clearly. Vague contracts lead to scope creep and disputes.
2. Master Service Agreement (MSA)
Think of this type as the “parent contract” when working with a client long-term. It sets the legal foundation, so you don’t have to renegotiate every detail for each new project.
3. Statement of Work (SOW)
Attached to an MSA, a SOW outlines the specifics of a single engagement. It should include exactly what will be done, when it will be completed, and how much it will cost.
💡 Tip: A SOW helps prevent “extra work” requests from clients who assume everything is included. If it’s not in the SOW, it’s not part of the job.
4. Client Agreement / Terms of Service
If you sell services directly to the public — especially via a website or subscription model — this agreement can protect you and your business. It sets expectations, outlines cancellation and refund policies, and helps manage boundaries.
When You’re Hiring or Collaborating
These contracts define roles, ownership, confidentiality, and what happens if something goes wrong.
5. Independent Contractor Agreement
When you hire 1099 workers, this document is essential. It clarifies that they are not employees and outlines the scope of their work, deadlines, and payment.
💡 Tip: Make sure this agreement is clear to avoid misclassification issues with the IRS.
6. Non-Disclosure Agreement (NDA)
Used when sharing sensitive information with contractors, collaborators, or potential partners, an NDA can protect your intellectual property, business plans, or client data.
7. Employment Agreement
If you bring on W2 employees, this contract type outlines job responsibilities, salary, benefits, and company policies. Even if you only have one employee, this sets a professional tone and helps avoid misunderstandings.
8. Partnership Agreement
If you are starting a business with someone else, don’t skip this step in the start-up process. It defines each person’s role, ownership share, responsibilities, and what happens if one partner wants out.
💡 Tip: Have the tough conversations early. A solid partnership agreement can save your friendship and your business down the line.
When You Work With Vendors or Use Space
These contracts help manage the flow of goods and services into your business, as well as your physical working environment.
9. Vendor or Supplier Agreement
If your business depends on receiving products or services from third parties, this agreement protects both sides. It covers pricing, delivery schedules, penalties for delays, and quality standards.
10. Work Order
Common in trades or operations, work orders are simple, task-based authorizations for one-off jobs. They’re often used under a broader MSA and help track who did what, and when.
11. Lease Agreement
Whether you’re renting a desk, office, or commercial space, lease agreements are a different beast than residential leases. Read carefully — commercial leases often have less legal protection for tenants.
When Intellectual Property Is in Use
These contracts cover rights, royalties, and usage permissions — especially important if your work involves content, branding, or proprietary tools.
12. Licensing Agreement
If you use someone else’s IP — or allow someone else to use yours — you’ll need a licensing agreement. It spells out what’s being licensed, for how long, in what context, and under what terms.
💡 Tip: Don’t assume “it’s fine to use”— get explicit permission in writing. Licensing violations can lead to expensive legal trouble.
"Contracts are like parachutes – if you don’t release them at the right time, they won’t work."
— Frank Underwood, Fictional character from House of Cards.
The First Step: Understanding Your Needs
You don’t need to become a lawyer — but you do need to understand the purpose of each of these contracts.
Start by identifying where your business is today. Are you:
Working with clients?
Hiring help?
Leasing space?
Each activity has a matching contract that protects your interests and keeps things professional.
If you're feeling overwhelmed, don't worry. Most small businesses only need a few of these at first. Start with the basics, and expand as your business grows.
Subscribe to Read Part 3 in this mini-series!
In Part 3 of this 5-part mini-series on Contracts for Small Business Owners, I’ll cover contract clauses that every small business owner should understand.
Have you ever done work without a contract?
Did you end up in trouble because you didn’t have a contract?
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