Contracts are the backbone of any business relationship.
As a small business owner you will encounter numerous occasions where you need to sign or prepare contracts for your clients. Making sure there is no fine print that can come back to chase you can honestly give you a headache.
How can you avoid the contract headache?
How can you make sure that you know what the contract says?
How can you focus on DOING business without digging deep into legal issue?
These are questions that can be best answered by your legal counsel. Hiring a lawyer might be pricy from a small business owner’s perspective but a lawsuit and the cost of not doing business are way more expensive.
Our best advice is to contact a lawyer before signing any contract and asking for their advice when you draft:
- Licensing agreements
- Franchise agreements
- Employment contracts
- Subcontractor agreements
- Partnership, incorporation or shareholder agreements
- Lease agreements
- Mortgage, purchase agreements
Sometimes issues that seem simple have more than one layer of legal regulations and might turn out to be those headache-giving cases.
However, even if you decide to review your contracts by yourself there are a couple of things you should pay attention to. All contracts contain the following:
- An offer
- An acceptance of that offer
- Consideration – I will do something if you do something else.
One very important question that many small business owners raise is
Do all contracts need to be written?
Legally, not, but we recommend that you have all your contracts in writing because oral ones are hard to prove.
What to look for in a contract?
– Look at the definitions – do you understand them all?
– Does the contract state what is expected of EACH of the parties with exact time frames, amounts and conditions?
– Avoid assuming – if something is not explicitly stated in the contract in is not arguable later on. Things that you consider common sense or that you “just discussed” might not mean the same for the other party.
– A lot can change over the life of a contract – make sure you agree on the conditions now and you will agree with them by the time the contract expires.
– Make sure there are clauses that clearly state the penalties for not meeting contract conditions and breaching the contract. Are the remedies enough to protect you in such cases?
Problems that usually occur with small businesses are that they don’t know that they need a contract. Inexperienced business owners also have no idea what kind of clauses to include in contracts to make sure their interests are protected.
Imagine a delivery contract that doesn’t state when payment is to be made. Seller assumes something, buyer assumes something….Legal issues are not a guessing game! Your legal advisor has a lot of experience with contracts and can make sure you include everything a certain type of agreement is supposed to have.
Another issue that your legal advisor can help with is custom contracts. Normally, a small business will have standard contracts to deal with clients but every now and again a big transaction needs to be handled with more care. The risks of drafting a custom contract without a lawyer become even greater when the other party is using legal advice. Can you be sure your business’s interests are protected?
In law, prevention is the best tool you have. Dealing with claims and legal issues after the fact may cost you your business.
Are you sure that you are not breaking any other laws by entering into agreement with a certain party?
These and many other issues need to be closely reviewed by your lawyer especially when you sign important long-term contracts.
Once you sign, you are legally obliged to comply, so make sure you know what your contract is saying …. or not saying.
Need your contract reviewed? Not sure if you need a contract?
Just contact us and we will be happy to help.
Don’t forget to download your free copy of Small Business Law from our website, which contains tips and hints on legal issues facing small business.