Starting a new business is an exciting adventure with plenty of opportunities for growth and success. However, there are certainly challenges and pitfalls for which you need to prepare. If you want to weather the storms and come out on top, you will need to anticipate problems, sort out the details and make clearly written business agreements.
You might be tempted to rely on a verbal agreement or boilerplate contracts. Despite the potential savings up front, these approaches often end in expensive legal problems later. Keep reading for advice on writing solid business contracts to avoid disputes and lawsuits.
1. When in doubt, write it out
While oral agreements may technically be legally binding in certain circumstances, it is always best to get everything in writing. This is the best way to ensure clarity of rights and obligations of both parties. Reduce your risk of arguments and legal disputes by writing out all your contracts.
2. Define terms and parties correctly
The devil is in the details when it comes to business contracts. For example, a contract might say that both parties will divide profits equally. You should specify whether this means net or gross profits. Refer to the parties and any property in such clarity that it could be easily understood by an attorney or another third party. According to Business News Daily, this is a good way to avoid misunderstandings and assumptions.
3. Prepare for disputes
Include what you will do if something goes wrong with the contract. For instance, you might specify that you will go through arbitration, mediation or litigation. You should also include a provision describing what state law will govern your contract. While the goal of writing a contract is to prevent disputes, you should always prepare for the worst just in case.
If you do not cover all your bases with a detailed business contract, you could end up in a costly legal battle. Taking extra care to draft a great agreement can save you significant problems in the long term.