While verbal agreements may have been sufficient in past business dealings, we are increasingly seeing deal breaking and lawsuits happening as a result of verbal agreements or contracts that are poorly drafted.
Unfortunately, small business owners, especially those just starting up, continue to enter into verbal agreements without even realizing the risk they are putting themselves in.
The problem with verbal agreements is that they are hard to enforce and can leave you with little recourse to take legal action or request compensation. People lie, they disappear, they forget, and they misunderstand.
To mitigate these risks, it is important that key agreements are in writing and properly drafted. This not only gives you a means of proving the other parties fault if something does go wrong, it also ensures everyone is on the same page.
This also gives you the opportunity to address the resolution of possible disputes, allowing you to outline alternatives that may be cheaper and less time consuming than litigation, such as binding arbitration.
Key business agreements that should always be in writing include, but are not limited to:
- Contracts for the sale or transfer of land.
- Contracts that cannot be performed in a year.
- Contracts for transactions over $500.
- Contracts that guarantee debt.
While it is possible to draft an agreement without the assistance of a professional, such as Koroll & Company, it can be a good idea to ensure nothing has been overlooked and mistakes have not been made.
Whether you do it yourself or hire a professional, there are important elements that every contract should have.
1 - A straight deal
Well-written and concise contracts can be just as effective as one filled with lots of legalese. Ensure that your statements are clear, short and simple and that they are accompanied by logical headings. Include information about the scope of the deal including the work to be performed, timelines and deliverables.
2 - The right contact
Often times, businesses will assign a junior employee to communicate with vendors and business partners when drafting contracts. The problem is that the person is often a go-between for you and the person that has the authority to bind a contract.
Don’t waste time negotiating with someone who does not have the ability to make contracts on behalf of the business, ask to speak directly to the person with the authority instead.
3 - Precise identification
When drafting a contract, you want to be sure you are precise and accurate. Take the time to include correct legal names and identify responsibilities clearly.
4 - Address payment obligations
When entering into a contract where payments and services will be exchanged, which is the case for most contracts, ensure that payment schedules and conditions for making payments are addressed. It is also a good idea to include acceptable methods of payment.
5 - Contract termination
When drafting a contract, be sure to address situations where the contract can be terminated, such as missing important deadlines. This will ensure neither party is on the hook for breaching or violating the agreement if they choose to terminate the agreement due to poor management, etc.
6 - Dispute resolution
As mentioned earlier, contracts can be an effective way to avoid costly litigation. Ensuring that your contract includes details of how any disputes will be handled, will help in the long run if something does go wrong. When covering dispute resolution, you may also want to cover the awarding of fees if a dispute moves forward such as those associated with litigation or arbitration.
To discuss whether you should put an agreement in writing with regards to your business and to discuss other business needs, contact us today.
