Critical Contracts Every California Business Should Have

Launching and running a business in California is thrilling until the legal fine print sneaks up on you. Contracts are the guardrails that keep your business from swerving into chaos.

At In Motion Law, we see it all the time: entrepreneurs pour energy into product, brand, and growth, but skip airtight agreements. That’s how disputes happen, money leaks, and partnerships implode.

6 Types of Contracts Your Business Needs

Here’s the breakdown of critical contracts every California business should have and what the law says about them.

1. Business Formation Agreements

If you’re starting an LLC, partnership, or corporation in California, you need governing documents that define how decisions are made, profits are shared, and disputes are resolved.

• Operating Agreement (LLC): Not legally required under the California Revised Uniform Limited Liability Company Act (Corp Code § 17701.01 et seq.), but courts expect it. Without one, state default rules apply, and you may not like them.
• Partnership Agreement: Clarifies partner duties, profit distribution, and exit rights under California Corporations Code § 16100 et seq.
• Bylaws (Corporation): Corporations must adopt bylaws under Cal. Corp. Code § 212, which dictate voting, meetings, and director authority.

Skipping these contracts is like skipping a blueprint for your house. You’ll regret it when cracks appear.

2. Employment and Independent Contractor Agreements

California has some of the toughest employment laws in the country. If you hire workers, you need contracts that reflect those realities.

• Employment Agreements: These should spell out job duties, compensation, benefits, and termination procedures. While not legally mandated, they provide clarity and prevent wage and hour disputes under the California Labor Code.
• Independent Contractor Agreements: Thanks to Assembly Bill 5 (codified at Labor Code § 2750.3), the “ABC test” applies in most cases to determine if a worker is an employee or independent contractor. Misclassification can trigger penalties, back pay, and lawsuits. A solid contract won’t override the law but can help align expectations and compliance.

Not sure which one you need? Contact a San Diego business lawyer and schedule your consultation today.

3. Confidentiality and Non-Disclosure Agreements (NDAs)

Your ideas, client lists, and trade secrets need protection. California has adopted the Uniform Trade Secrets Act (Cal. Civ. Code § 3426 et seq.), which gives you remedies if secrets are misappropriated.

NDAs make it easier to prove ownership and enforce protections. They also set a clear tone: confidential information stays confidential. But beware: California bans most non-compete agreements under Business & Professions Code § 16600, so your NDA can’t morph into an illegal non-compete.

4. Client and Customer Contracts

Whether you sell products, offer services, or license software, clear agreements with clients are essential. These contracts are used to:

• Define deliverables, payment terms, and timelines
• Include dispute resolution clauses (arbitration vs. court, venue selection)
• Address California-specific consumer protection rules (such as the Song-Beverly Consumer Warranty Act, Civ. Code § 1790 et seq., if applicable)

Without these, you’re exposed to non-payment, scope creep, and customer claims.

5. Vendor and Supplier Agreements

Your supply chain keeps your business alive. Protect it. Written contracts with vendors and suppliers should cover:

• Pricing and payment terms
• Delivery obligations and quality standards
• Liability allocation for delays or defective goods

California’s Uniform Commercial Code (Cal. Com. Code § 2101 et seq.) governs many of these transactions, but a tailored contract ensures you (not default statutory language) set the rules.

6. Shareholder Agreements (If Applicable)

For corporations with multiple shareholders, this contract is non-negotiable. It handles:

• Buy-sell provisions if a shareholder exits
• Voting rights and restrictions
• Procedures for bringing in new investors

California courts will enforce shareholder agreements consistent with Corp. Code § 706, provided they don’t contradict statutory protections. Without one, disputes among shareholders often end in costly litigation.

Need a Business Contract? We Can Help

California is a powerhouse for business, but it’s also a minefield of regulations. The right contracts protect you from stepping on one of those mines. Don’t wait until you’re served with a lawsuit to realize that you took shortcuts when you shouldn’t have. Contact In Motion Law today to review your contracts or draft the ones you’re missing. The future of your business depends on it. Call at 619-693-8336 today.

Source:

leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200AB5