Negotiating and signing contracts is a critical part of running any business. After all, you enter into agreements all the time with your customers and clients, vendors and strategic partners, and employees and independent contractors. But not all contracts are created equally. It’s important to work with an experienced contract attorney to make sure that your contracts are legal, binding, and enforceable. If you want to minimize legal risks in your business operations, then you need to have contracts that have been professionally drafted and reviewed.
Why have a licensed attorney prepare and review your contracts? How do you prevent misunderstandings and preserve relationships in your business deals?
How do you minimize the financial risk your business may be exposed to if things don't work out?
How do you know that your business is not being taken advantage of?
How do you confirm that everyone is literally on the same page about the terms of the deal?
And perhaps most importantly, how do you make sure your agreement will be legally enforceable if there is a problem?
What's wrong with generic, online form contracts?
Often, the contracts you find online are just wrong . . . the wrong parties, the wrong applicable law, the wrong type of agreement, etc.
Or, the contract is just too simplistic. It's missing key clauses that, worst case scenario, will protect you and your business.
Or, the contract has a bunch of terms with legal meanings that you don't understand and don't know whether (or how) you can change.
Even worse, that generic contract often doesn't match what you and the other party actually intend. (And the courts don't care about what you "really" meant if it's not actually in the contract.)
Put simply, one size does not fit all.
Using generic contracts you found online doesn't save you (or your attorney) time or money. It's actually harder to fix the mess than to start from scratch with a good structure.
What makes a contract valid or legally binding? In order for your business contracts to be legally binding, there are a couple of key things we look for:
Does the document indicate that one party offered something to the other party that the other party agreed to accept? For example, if you are a service provider, you offer to provide your services in exchange for some payment, and your client accepts that offer when they sign the service agreement. When the client doesn’t sign but instead says, “let’s negotiate your fee,” then you don’t yet have a binding contract because there hasn’t been a “meeting of the minds.” You haven’t yet agreed on the key terms. Incidentally, this is the biggest problem with verbal or oral agreements. All of that, “he said, she said,” makes it nearly impossible to prove that there was a meeting of the minds and what the parties actually agreed to do.
Consideration is simply the value being exchanged. As a business, you don’t provide your goods or services for free, do you? The consideration is the amount you charge for your goods or services. Consideration can also be less tangible. For example, in confidentiality and nondisclosure agreements, one party agrees not to share confidential information that, but for the contract, they wouldn’t be under any obligation to keep confidential. In exchange for this promise to maintain confidentiality, one party is getting access to information they wouldn’t otherwise have. (This access is the consideration that makes the contract legally binding.)
What should be included in your business contracts? A good business contract will include all of the details that are relevant to the transaction.
What goods or services are being provided? By when?
How much is going to be charged for those goods or services? When is payment due? What happens if payment is late?
Who are the parties to the agreement? (Remember, you are not your business.)
What other details are important? What was discussed in the negotiations? Once the contract is signed, the only thing that typically matters is what is actually in the contract.
What could possibly go wrong? What should happen in any of those circumstances?
What business contracts must be in writing? While we generally advise clients not to rely on verbal or oral agreements in business, certain contracts must be in writing in order to be legally enforceable. This rule is known as the Statute of Frauds. The most common types of business contracts that must be in writing include:
Service Agreements that cannot be performed within one year
Contracts for the sale of goods in excess of $500
Contracts that involve the transfer of land (including commercial leases and real estate purchase agreements)
Contracts of suretyship, which are contracts to assume another party’s obligations
What are the most common types of business contracts? There are a wide variety of contracts you might need over the life of your business. Some of the most common business contracts include:
Service or Sales Agreements: Unless your business is strictly a retail business, you will probably need a contract for the services you provide or the goods you sell. If your business is web-based or operates through an app, you will still need this type of contract, but it will commonly be referred to as a Terms of Service or Terms and Conditions.
Nondisclosure Agreement: Before you share any confidential information about your business, you should have the other party sign a nondisclosure agreement (NDA).
Partnership or Operating Agreement: If you have business partners, it’s critical that you have a written agreement that governs the business relationship.
Property or Equipment Leases: If your business leases property or equipment for its operations, then you need a written agreement that spells out the terms of the lease.
Employment or Independent Contractor Agreements: As you begin to hire staff, then you will need to make important decisions about the terms of the relationship. Is the staff person an employee or independent contractor? What is their compensation package? Will they be developing any intellectual property? Do you need non-compete or non-solicitation clauses?
Before you doctor up another contract you found online, waste your money on one of those DIY forms, or sign whatever is put in front of you, get a free review checklist. Then decide whether that contract is really worth the paper it's written on.
