Not having something in writing only hurts you when things go bad or change…and for a business, this is generally a way of life. Business is anything but constant and unchanging…it is always in flux and changing. There are new opportunities and there are times when you have to get out of something and change directions. Regardless of the reason, changes are inevitable.
There is nothing wrong with change…as long as you are protected along the way. We always talk about how business deals get done with a “handshake” or on the back of a napkin and everyone agreeing to the plan and direction. While this is a great way to be creative and construct new deals, it is also a dangerous way to run a business.
Is it a “Verbal” or “Written” Contract
The issue for most business owners is that contract can be verbal and they can be written…both are enforceable depending on the circumstances. With all the different ways we communicate today…via email, text, written notes, on a white board or flip chart, and a variety of other ways, these can all be troublesome when it comes to the legal side of things. Depending on how it happens, communication through any of these means, captured, can constitute the intent to create an agreement and have the possibility of becoming binding in a court of law.
An Example
Let’s say, for the sake of example, that you designed something with someone and you wrote it down on the whiteboard in a conference room. It was the new idea for a product or even a company. You were both so excited about the possibilities and what you could do together that you also listed some of the roles each of you would play. And then with excitement still thriving you both signed the board as a commitment to each other.
Then as this moves along, something happens to your relationship. One of you decides you don’t want to work as hard or put as much money in, or a variety of other factors. But this is still part your idea and work. The other person says if you don’t want to go all in, you’re out. You disagree and tell them you deserve part of the company, regardless of effort. You are both unhappy and part company.
Is there a legal contract in place? Nothing in writing…well not in contractual form anyway. But you essentially have a binding contract of sorts on the wall. And if you took a picture of this artwork you both could be viewed as entering into a contract together. Would it hold up in court? That is always where it can get complicated…but you’re both going to have to hire attorneys and spend money to figure it out. There is a high likelihood you have created a contract.
When to Call a Lawyer
Whenever you believe you are going to do something that could be viewed as “contractual,” even if it seems remotely possible, get a lawyer involved to help you put things in writing and get them signed off as a contract. This form a contract offers you much greater protection in the future should something go off course from the original discussions. Contracts give you the ability to specifically put what you want into a legally binding document that is signed by all parties.
Now if there happens to be some other discussions that went on earlier, they will either be invalid or minimized because you went to the length of putting something else in writing and had it signed. This carries much more credibility and enforceability in a courtroom. Something in writing, in the form of a legal document, can protect you from unwanted outcomes, unnecessary legal costs, time, and lots of headaches.
The Opportunity…
Everyone has the best of intentions…in the beginning. But as things mature and get more defined, things always change. Hopefully they change for the better, but often times they change for the worst. Regardless of which way they go, I highly recommend you eliminate as much of the downside as possible and see a lawyer early in the discussions. The initial fees you may incur will be substantially less than the fees you will incur when things go sideways.
Contracts are not difficult when they are created early in the process and the parties can specifically define what they want to have happen. They get much messier as time goes on and more things develop. When created earlier in the process, then all future discussions can be centered around the contract and they don’t stray too far away. When something changes significantly, then it’s time to revise the contract that is already in place. This is a much easier process for everyone…and much less expensive and time consuming. And the best part is that it continues to minimize the emotions and clarify things so there is a lot less to “interpretation” and more focused on the facts.
What To Do Next…
If you ever have any questions about contracts or any other aspect of your business, just ask and we’ll be happy to answer them. Or if you want to better understand how you can minimize and lower your risks (which every business owner wants) then please read some more about risk management and how you can help determine your own risk. I’d also be happy to meet with you (complimentary of course) to discuss your own personal situation further and give you some insights about how you might want to proceed.
I hope you have found this helpful and given you a different way to look at your business. If it has, please share this with others inside your company and your colleagues who are running or leading other businesses. Our primary mission at Generations Law Group, LLP is to help everyone find productive ways to lower their business AND personal risk. This is just one way you can start to do this…but it will tell you a lot about you and what has happened over the past few years with regard to your business risk. Let’s make sure your risk is as low as it can be while you continue to grow.
