Everyone knows the value of a contract. It enables parties to come to mutually beneficial agreements which facilitate innovation, creativity, and business expansion. But drafting a contract is easier said than done. A layperson could draft something that looks like a contract but is woefully deficient. It may even contain provisions that are not enforceable. A poorly drafted contract creates ambiguity, confusion, and misunderstandings that can derail a business and other deals.
Contracts spell out the rights and obligations of parties in a number of different contexts. These are some of the types of contracts your business may use:
- Partnership, joint venture, and shareholder agreements between co-owners of a business
- Lease agreements for physical space your business wishes to occupy
- Employment contracts that spell out the rights and obligations of employees
- Executive compensation and performance contracts for your company’s management
- Financing agreements for lending or investing purposes
- Supplier contracts to ensure a reliable source of specific supplies for your company
- Licensing agreements to ensure that intellectual property is not stolen or misused
- Non-compete agreements to prevent employees from taking sensitive information to other companies if they leave
- Nondisclosure agreements to prevent the disclosure of trade secrets and other confidential information
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Almost every relationship between your company and others – and among entities within your company – should have a contract. Most people realize this, but they either don’t reduce agreements to contracts or they attempt to draft their own. Without an understanding of contract law, either of these is risky.
The objective of entering into a contract is to clarify the parties’ obligations while providing them with legal protections. To do that, you need a contract that is customized for the exact needs and nature of your business. Attempting to shoehorn your company into a generic contract will not protect your company, and could even augment the risk. A good contract makes litigation less likely by providing enforceable rights and remedies upon breach.
Drafting is an important step, but negotiating your contract is also critical. Whether you or the other party initially drafted the contract, the details will have to be negotiated. This could mean several rounds of discussions between the parties. If successful, the process will result in revisions and modifications to the original draft.
During the negotiation process, you need an experienced contract drafting attorney. Your attorney will be able to explain the proposed revisions and the consequences they could have for your business. A skilled attorney can also suggest which revisions should be rejected or modified. Sometimes, to keep negotiations moving forward, you can suggest acceptable alternatives to the other parties. Also, parties will occasionally include provisions that are not enforceable for one reason or another. Your attorney can spot these and propose solutions for handling them.
Negotiating usually means compromising. Everyone naturally wants a contract to go their way 100%, but we all know that’s not realistic. A skilled contract drafting attorney understands your company’s values and the bottom line. But your attorney will also help you avoid making unreasonable demands that could destroy the negotiations. At the end of the process, the compromised agreement will on balance benefit and protect the interests of your company.
Businesses need contracts. And while it’s tempting to rely on form contracts or to simply do the drafting yourself, this is dangerous. There’s no way to anticipate every possible contingency that may arise. And no contract, no matter how well drafted, can guarantee that the parties won’t someday end up in court. But having a professionally drafted contract can provide an invaluable measure of assurance and protection.