Papering the Deal: Get it in Writing!
Business Law for Entrepreneurs Series
By Adrienne B. Haynes, Esq.
Managing Partner, SEED Law
Relationships are the lifeline of a business. Relationships help you better understand your client and customers, financially sustain your business, and ensure that you can continue to provide your products and services over the long term.
Business can move at a fast pace, and a contract is the most clear-cut way to make sure all parties have a “meeting of the minds”. For SEED Law clients, we recommend that every relationship worth having and keeping should be documented in writing. If you’re working with a client, partner, or vendor who you think would be offended by a contract or is unwilling to sign an agreement- run! That can be a hard lesson to learn, but wanting a documented relationship should not deter business- in fact, it should do the opposite in good relationships. Putting your understanding in writing minimizes the guess work in conflict, making it easier to make and grow relationships.
Make sure your governing documents are in place. Your key business documentation should be transitioned from your head as a founder or leadership team, and onto paper. Who owns the business? How are decisions made as a leader or leadership team? What happens to the business in the case of death or disability? When determining your choice of entity, there are key governing documents that should be developed and filed in your corporate records. Depending on your entity type, this could include operating agreement, buy/sell agreements, bylaws, vesting agreements, and financing or investor agreements.
A major part of this key documentation includes succession and exit planning documentation.
Know your KEY terms and provisions. Contracts and documentation are important whether your business is typically signing or providing the documentation.
If you’re providing the documentation, implement standard agreements that mirror the way you want to do business and the laws in your state. This is key because some rights, such as mechanics liens, are only preserved if certain notices and specific language is used.
If you’re typically signing agreements, make sure you read it before you sign it! Know that it’s ok to make edits and negotiate. You want to make sure it’s written in a way that leads to your success and effective performance. If the timelines or payment terms are unreasonable for you- say something in advance.
In addition to client, customer, and vendor agreements, there should be key terms and provisions in your other common agreements. This may include waivers, website terms and conditions, licensing agreements, influencer agreements, etc.
While I understand do-it-yourself documentation, a challenge with piecing together documentation a la google is that it could be incorporating standards that don’t reflect your business processes or the legal standards from other states. I recommend hiring an attorney so that you can focus on doing business and your attorney can be your extended brain and advocate, ensuring that your key terms and provisions are included and that it’s favorable to you.
Get it in writing BEFORE you perform. Once the relationship has begun, the contract usually only gets picked up again in the event that something’s not going quite right. Knowing what to expect before conflict or a triggering event and the solutions and remedies available make it easier to perform in compliance and trust the relationship that’s developing.
If you’re used to making only verbal agreements, remember that enforceable contracts require offer, acceptance and consideration. If these elements are present, a contract is usually binding. There is a legal principle called the Statute of Frauds does require that certain contracts be in writing to be enforceable. Those contracts include those for the sale of goods over $500 and contracts regarding the sale or lease of land, contracts in contemplation of marriage, contracts promising to account for the debt of another and those that cannot be completed within one year.
Recognize your remedies. Having contracts in place is a wise business decision, but it’s also important to understand your remedies. In most states, the available remedies include money damages, restitution, rescission, reformation, and specific performance.
• Restitution: remedy designed to restore the injured party to the position occupied prior to the formation of the contract.
• Rescission: remedy that terminates the contractual duties of both parties
• Reformation: remedy that allows courts to change the substance of a contract to correct inequities that were suffered.
• Specific performance: when money damages are inadequate to compensate the plaintiff for the breach
Lastly, even when you have all of your “i’s dotted and t’s crossed”, it’s important to have your agreements reviewed every 2–3 years to ensure that they are still consistent with the law and with the way you want to do business.
This article is an overview of contract considerations, including governing documentation, key terms, and remedies and does not cover every legal right or obligation, consideration, exception, or restriction. These documentations and decisions are complex, and should be well researched and discussed with a professional before being made.
To schedule a consultation with a SEED Law attorney, you can give us a call at (816)945–4249 or schedule your consultation today here.
