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Handshake business deals are a thing of the past.  While the prospect of making money on a new business venture is exciting, don’t forget to guard your interests before getting started.  Things can fail in business deals.  Relationships sour.  Conditions change.  When this happens, and you need to hire a lawyer to straighten things out, one of the primary questions you’ll be asked is, “Did you get a written contract?”  If you’ve ever been in this position, then you recognize that preserving your interests is much more difficult if there is no written contract setting forth the terms of your agreement. 

Without a written contract, a judge or jury will have a tough time determining which version of events to believe in a “your word against theirs” scenario.  

Before you find yourself in this position, there are several key points to consider when solidifying your business arrangement.  

Written Contracts Offer Clarity 

The main reason many verbal contracts fail is that parties change, memories fade, and one person’s version of events is often different than another’s.      

When a discussion focuses on things like business plans, responsibilities, and money management, implied agreements aren’t good enough.  Putting agreements into writing allows everyone involved to review what the other stakeholders understand their agreement.  If a written agreement highlights an area of dispute or confusion, stakeholders can address and negotiate that area before committing to the business.  

Written Contracts Provide Proof of Details

This is definitely one of the reasons why a written contract is essential for your start-up business or any sort of contract – it can legally function as proof of details on whatever you and the other party have mutually agreed.  It provides the ultimate understanding of the agreement between the owners of a company or its investors, about the services rendered by a third party, or payment obligations to your hired workers.  All these things should be stated within the written contract as legal proof.  

In order for a contract to fulfill these purposes, though, it must be detailed.  The rights and duties of each party should be defined clearly, with little room for interpretation.  Issues like time for performance, payment terms, termination rights, and rights upon default should all be clearly documented. 

Not only do clear, specific terms help limit uncertainty in the event of a dispute, but the negotiation process can also help make clear whether there is a deal at all to document.  The questions that oral contracts often leave unanswered frequently lead parties to begin performance under an “agreement” only to find that there are major areas of disagreement between them.  Negotiation over a written contract likely would have discovered these issues early on.

Enforceability

Not only is it advisable to get business contracts in writing, but some types of contracts must also be in writing to be enforceable.  These include (but are not limited to) contracts for the sale of real property, real estate leases for more than one year, and agreements to pay the debts of another.  In addition, certain contracts for the sale of goods under the Uniform Commercial Code – such as the sale of goods with a price of $500 or more – must be in writing.  

Written Contracts Offer Protection

This is particularly true when a business partner invests a large amount of his or her own funds, intellectual property, or labor into an organization.  Without a written contract that stipulates repayment of seed-money or ownership of intellectual property, or that issues shares of business on the basis of work contributed, partners, will remain unprotected in case the partnership breaks up or the business fails.

Written Contracts Make Disputes Easier to Navigate

When business disputes occur, it’s important for partners to work together to quickly resolve them.  However, when stakeholders find themselves stalled by disagreement, it may be necessary to bring in a third-party mediator, or, in extreme cases, begin the process of dissolving the partnership.  

In such cases, it is much easier for arbitrators, small business attorneys, and judges to navigate the dispute if there is a written agreement.  These third parties can refer to the agreement when entering negotiations or making choices about the future of the business.  

There are many other reasons to have a written contract besides having evidence to point to during litigation.  A written contract ensures that all of the terms of your agreement are documented.  If a disagreement arises, there will be a document that the parties can refer back to in order to get the relationship back on track.  In short, a solid written contract can save money and strengthen a business relationship by helping to avoid litigation altogether.

Confidentiality

One of the ultimate benefits of having written contracts in business transactions is the opportunity to agree to confidentiality and non-disclosure provisions protecting classified information.  As part of the agreement, the concerned parties are legally bound to hold in secrecy the transactions involved and the information shared among them, and the party that violates this confidentiality agreement would be held liable under the agreement.  

Getting Help With a Written Contract

Contract laws vary from state to state, and certain state laws may restrict specific terms and clauses from being included in your agreement.  If your agreement somehow violates the law, a judge may determine that it’s invalid.  Contacting a startup attorney to assist you with drafting an agreement can maximize the effectiveness of your agreement along with the protections that it offers.  

Also, keep in mind that simply writing down an agreement is not the same as crafting an enforceable contract – let alone an enforceable contract that protects your business.  That is why it’s important to seek an experienced attorney’s advice when contemplating entering into any business agreement.  

The benefits of a detailed, unambiguous, and well-written contract are extensive.  It should be a basic best business practice to enter into written agreements with parties you do business with – including customers, suppliers, contractors, partners, shareholders, co-members of an LLC, and investors.  

Business laws can be extremely complicated and made even more so because they can vary from state to state. Contact one of our experienced business law attorneys at the Contiguglia Law Firm to help you determine which laws are applicable to your business and ensure your company’s success.     

Check out these other articles that might be of interest to you:

The 5 Biggest Mistakes to Avoid When Starting Your New Corporation

7 reasons you are breaking the law in your small business

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