October 31

10 Pitfalls to Avoid With Your Company’s Legal Agreements—Part 1

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Agreements are the heart of your business. Indeed, your entire business is one vast series of agreements: agreements with investors and lenders, clients and vendors, employees and contractors, as well as partners and customers. Yet, despite the critical role they play in a company’s success, far too many business owners fail to take their agreements seriously.

Whether it’s winging it by creating your own agreements or using cheap, do-it-yourself (DIY) legal documents you purchase online, failing to treat your legal agreements with the respect they deserve can cost you significantly. In fact, just one poorly constructed agreement could end up costing you tens of thousands of dollars in attorney’s fees and court costs—or even put you out of business entirely.

Given this potential risk, having an experienced business lawyer like us prepare—or at least review—your agreements is absolutely essential in protecting you and your business. To demonstrate how complex legal agreements can be and how ill-prepared you are to draft your own, here are 10 pitfalls that can put your company in serious jeopardy if you take the DIY route with such important legal documents.

1. Not Using Any Legally Documented Agreements At All

As we’ve covered before, agreements can actually be created verbally, without any written agreement at all. Whether you think you can go without legally documented agreements because you only do business with people you trust, or because you think agreements are something only big companies need, or because you think agreements are simply a way for lawyers to make money, you are setting yourself up for major costs down the road.

Such beliefs are a serious misunderstanding of the role legally documented agreements play in your business. In reality, your agreements are among your company’s most crucial tools—and these tools offer your company more than just legal protection. Agreements don’t just protect your assets, they give your relationships the greatest chance of success; they protect your intellectual property, your time, your energy, and your attention; and they let you know upfront, whether or not you are going to want to work with a particular vendor, client, or partner.

For example, documented agreements force both parties to work through important issues—and potential sticking points—inherent to the success of the relationship before any work begins. This not only saves time and money by preventing unnecessary future litigation to unwind a relationship, but it gives you early insight into how well you and the other party deal with conflicting viewpoints and desires, which is a vital part of any relationship.

Ultimately, having well-drafted legal agreements can enhance just about every aspect of your business—whether it’s boosting revenue, expanding your operation, hiring the most talented team, or improving your relationships—and you simply cannot afford to go without these crucial legal documents.

2. Signing Without Reading (or Understanding) an Agreement

Every agreement you enter into is likely to contain complex terms and legal jargon that can be tedious to read all the way through. But it’s vital that you not only read—but fully understand—all of an agreement's terms before you sign, since these terms can have a major impact on both you and your business, if and when you ever have to go to court to enforce the agreement.

Before you sign any agreement, you should have your Personal Family Lawyer® with family business planning expertise review the agreement with you to ensure you completely understand exactly what you are agreeing to and the full implications of your agreement. And be sure to seek our counsel before you sign, because once you sign, it’s too late—you’ve already entered into an agreement and are legally bound by its terms, regardless of whether you understood them or not.

3. Failure To Include (or Negotiate) Key Terms

One of the biggest mistakes you can make when entering into an agreement is letting the other party convince you that a key term or clause doesn’t need to be included because it’s something that’s “assumed,” “unnecessary,” or that a key term is just “standard.”

In legal agreements, there are no standard terms, or terms that are assumed or unnecessary. If you have an agreement, and it’s not written into the terms of a legally documented agreement that you have signed, that term will not stand as a term of the agreement, if later on, you ever need to enforce the agreement. Moreover, all terms in an agreement are negotiable.

In addition to helping ensure you fully understand an agreement’s terms, making sure your agreements include the necessary terms is another area where an experienced business lawyer can prove invaluable. To this end, you should have trusted legal counsel like us review every agreement before you sign to make certain that all of the necessary terms have been included—and the terms are documented clearly enough that anyone could understand them.

4. Failure To Establish A Clear Performance Standard

It’s fairly easy to enforce an agreement with a vendor who doesn't pay or a contractor who misses a deadline—the facts are clear in these situations. However, things get trickier when it comes to more subjective areas of an agreement, such as poor performance or “for cause” termination.

To address this, your agreements must be as specific as possible about the goals, objectives, and deliverables of the relationship to ensure your vendors, employees, and contractors are clear on what success looks like, and that those success terms are outlined within the agreement. If not, you may get stuck with a shoddy product or a poorly performing team member, while still being required to pay for the work.

When you hire a new employee, for example, you should establish clear, measurable outcomes for the role, with specific metrics for success, along with time frames for specific goals and objectives to be achieved. Then, include this information in the employment agreement, so it’s abundantly clear what the expectations for the position are for the team member and for you.

5. Not Defining What Constitutes A Breach

Along with establishing clear expectations for performance, it’s also vital to consider all of the things that can go wrong in a business relationship before work starts, and then establish a clear process for addressing each issue in the agreement.

For example, in the above scenario, you need to think about how you’d deal with the new team member if things didn’t work out as expected. What would happen if the individual needs to leave, can’t perform, or isn’t performing for some reason? What is each of you entitled to in the event the relationship needs to end? All of these scenarios need to be thought through and clearly addressed in the agreement.

Next week, in part two of this series, we’ll cover the five remaining pitfalls you’re likely to encounter when going it alone with your company’s agreements.

Don't Do-It-Yourself

For now, make the commitment to never sign another legal agreement until it’s been reviewed by us, your Personal Family Lawyer® with family business planning expertise. This is a wise and invaluable business practice, and it’s one we support every client with. Whether you have existing agreements that need to be reviewed or you need new agreements drafted, we’re here for you. In the end, enlisting our support with your agreements could be the make-it-or-break-it difference for your business. Call us today to schedule your visit.

This article is a service of a Family Business Lawyer™. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule.

Proper estate planning can keep your family out of conflict, out of court, and out of the public eye. If you’re ready to create a comprehensive estate plan, contact us to schedule your Family Wealth Planning Session. Even if you already have a plan in place, we will review it and help you bring it up to date to avoid heartache for your family. Schedule online today.


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