With agreements being the cornerstone of most business arrangements, I am surprised by the number of business owners who continue to ignore the importance of putting it in writing – that’s right, a written contract. No matter how well-intentioned both parties are, operating on a handshake is far too risky for your business.
I think we can all agree that the days of doing business on a handshake are long gone. Some might ascribe this to a decline in business ethics. More charitably, we might attribute it to the overload of information (resulting in “selective memory” regarding verbal agreements). Whatever the causes, the solution is to always GET IT IN WRITING! This is true whether you’re doing business with family, friends or strangers.
The purpose of a contract is to outline terms and conditions that are mutually agreed upon by both parties. When you reduce those terms and conditions to writing, you will be surprised at how many additional factors there are to consider.
Not putting your agreement in writing, however, prevents you from having that full discussion with the person on the other side of the deal, and sets you up for possible misunderstandings down the line.
Good intentions and trust are important to business relationships, but they are not a substitute for a written agreement.
1. Partnership Agreement
This document should define among others, such issues as:
- Each partner’s financial investment as well as non-monetary investment or “sweat equity.”
- The share of ownership each will relinquish if more capital is raised.
- How ownership will be redistributed when a partner leaves the business.
2. Employment Agreement
Clearly describe expectations and guidelines for employees. Make sure to designate if employees are “at will,” meaning they can quit or be terminated at any time for any reason.
Also, if employees are creating copyrightable works, it is important to indicate that their work is “made for hire,” thus, the employer— not the employee—is considered the legal author. Confidentiality and invention assignment agreements could be essential depending on the nature of your business.
3. Business Practices
Document your practices including hiring, firing, receiving income, making expenditures, shareholders meetings, stock transfers, and other practices involved in the operation of your business.
All business arrangements should be agreed to in writing. Some arrangements require formal contracts with signatures by both parties.
You may not think you need to take such formal steps to protect yourself when you are dealing with close friends or family. But my advice is that the closer the relationship the more important it is to put your agreement in writing. Not only will it protect you legally and financially, but perhaps more importantly, this could prevent misunderstandings, hurt feelings, and damaged relationships.
For more information on how to legally protect your business please pick up a copy of my bestselling book: ‘Go Legal Yourself’ on Amazon or visit my website at www.baglalaw.com
Disclaimer: This information is made available by Bagla Law Firm, APC for educational purposes only as well as to give you general information and a general understanding of the law, and not to provide specific legal advice. This information should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.