Why? Just Be-Clause

Although the title of this article might come across as “cute”, the topic is serious.  Compliance with contract terms and conditions – whether they are agreements with employees, investors, vendors, banks, or grant agencies – is, indeed, a serious topic.  Entering into a contract without understanding all elements of your requirements is poor business practice and puts you and your business at risk.

Neglecting the content of your contract(s) because of your own discomfort is not a wise business decision!  Reading contracts to understand the terms and conditions is a skill which can be acquired.  How?  By investing time and dollars to work with advisors (attorneys, financial advisors, business consultants, bankers, etc.) to learn how to identify potential issues, develop an understanding of layout and terminology, and so on.  This team of experts needs to work for you and be experienced in the particular type of agreement being examined.

Why do they need to work for you? Because you need someone to represent your interests.  Someone who doesn’t work for you doesn’t have the same level of accountability and may not be independent from the other party in the agreement.

Here are other common mistakes:

  • Assuming this is the “standard” contract you received before
  • Allowing the other party in the contract to tell you what certain things “mean”
  • Leaving out an exit provision
  • Defining what recourse you have if things go wrong
  • Failing to define the terms used in the agreement
  • Using a past agreement as a template for a new relationship
  • Failing to analyze the legal relationship you want to create
  • Failing to identify these items:
    • MUST have terms and conditions
    • Would like to have items
    • Don’t really need items
  • Saving money by not getting your attorney involved

The implications of not giving due respect to the legalities of the various agreements you enter into on your own or on behalf of your business have far reaching legal, financial, and personal implications.  Many business owners take the step of creating a corporation or LLC to separate assets of the business from their personal assets.  Then they proceed to enter into agreements which pierce that protective layer.

For instance, signing agreements which include personal guarantees on behalf of the business  means that if the business defaults (doesn’t meet the terms and conditions) the individual owner(s) are liable for fulfilling the agreement or settling the account.  These types of guarantees can be found in loan and credit agreements, lease agreements, and many other “standard” transactions of daily business life.

Here are nine things to keep in mind when your signature or receipt of funds is involved:

  1. What is written in the agreement, appendices, exhibits, etc is what counts
  2. How a document is signed – as an officer of the company, owner, agent, or individual – determines who has liability
  3. Handshakes and “gentlemen’s” agreements need to be documented also
  4. Read, read, and reread every word for nuance, definition, and literal interpretation
  5. Define key terms
  6. Exclusions are as important as what is in the document
  7. Be sure  the person making the agreement is authorized to do so
  8. Beware of conflicts of interest and related party agreements
  9. Make the investment in having a legal document reviewed by qualified counsel.  It is not necessary to have the document written by an attorney, but do get an attorney to review your document BEFORE you sign.

Copyright ©2007 FOCUS Resource, Inc.

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