7 tips for solid business contracts

  1. Know your business partner

Even before having the first draft of the contract, you should figure out if you really want to do business with the other party. This should not be taken lightly – a company with questionable actions or even previous involvement in criminal activity can drag you down if such illegal activities continue on the duration of your business connection, even without your knowledge.

And as far as civil matters go, a pending bankruptcy is every business partner’s nightmare. If your commercial partner has financial difficulties, they could become unable to fulfill their obligations or make contractual payments in due time. If you are not careful, they can even drag you down with them.

So make a thorough inquiry about the other party before signing anything. This can vary from a simple google search of the company and its owners, looking for any weird information, including press articles, to checking their financial statements, previous court files or even hiring a specialised consultant to do some in depth research. This is what lawyers call “due diligence” and can save you a lot of trouble down the line.

2. Write it down

When it comes down to business, even the most basic contract is better than no contract at all. Phone calls and face-to-face talk will be lost in time, but written words are forever. And, most importantly, binding.

We all want to trust our commercial collaborators, but business is business. So always write down the terms and conditions of your agreement. To this end, the best option would be to hire a commercial lawyer. But even if you are just at the beginning  of your business journey and do not have that much money  to hire a professional,  you should at least look up a good contractual draft from the internet or another fellow entrepreneur, with similar activity.

However, if you use someone else’s draft, make sure you read it carefully beforehand, to make sure it is suitable for you. And also, check that it is a recent contract, drafted by the latest legal requirements applicable. The law changes quite frequently, and a contract drafted under laws that are no longer applicable might not do you much good.

3. Play on your own ground

As much a possible, compose and propose your own contract drafts to you commercial partner. The advantage is that they will be written in your favour as much as possible, not in the favor of the other party, and they will have no sneaky clauses that might not be visible from the beginning.

Such contracts should be as easily customisable as possible, so that you can use them multiple times with different parties. Just highlight the information that should be changed each time, such as contract number, signing date, the other parties’ details, price, duration.

And even if you have no contract of your own to propose, or the other party insists on using their own drafts, always read the contract carefully before signing anything and don’t be afraid to propose changes where you consider necessary.

4. Read between the lines

Whatever you do, even if you have a lawyer or not, read the entire contract carefully from start to finish. Not only the chapters that might seem most important at a first glance! For example, the chapter on Contractual Price might not mention any penalties for late payments, but you might find them under the Rights and Obligations section of the document.

Also, if the agreement comes back with amendments from the other party, check them thoroughly. They might seem harmless, but sometimes entire sentences can be completely changed by adding or leaving out a simple word. If the other party proposes changes to the contract, they will most likely me in their favor, not yours. So you must make sure that your rights are protected.

And we don’t even have to mention the contractual fine print, right?

Remember that once you put your pen on that contract, the document is binding and if anything goes wrong, you cannot argue in your defens that you simply missed to read a line or did not understand the contractual terms. These issues should all be addressed before the signing, not after. As a professional, you are required to check everything before signing and understand all the terms, no matter how complex they might seem.

5. Use clear terms and language

When in doubt, plain and simple English is always better than Legalese. As we mentioned above, as a professional you cannot argue that you signed a contract without understanding it. So if any wording is unclear or could have a double meaning, make it right first and sign after.

If you have any doubts, check with your lawyer. Legal terms might be tricky and although it is not expected that entrepreneurs went to law school themselves, they should at least know the most basic terms of business and commercial law.

It is always easier to prevent than to fix a bad commercial situation. A contract with unclear terms can lead to disagreements between parties along the way and, in the worst case, even litigation. In that situation, it will eventually be up to the judge to decide what the parties actually wanted to say in the contract. And if you had a certain business requirement, but it was not clearly mentioned in the agreement, it is not binding.

6. Negociate, negociate, negociate

If there are any contractual terms that don’t sound right, do not settle. Propose changes, let go of some things in order to gain others, which are more important to you. Nothing is set in stone until the final signing.

Of course, this does not mean that you should end up ruining a good business relationship for wanting to stick with certain contractual provisions. Flexibility is key to every negotiation and you should know when to let go in order to close a deal. But you must always look out for yourself and your interests, or nobody else will.

If you consider negotiations stressful, you can let your lawyers do the talking, while you take care of the strategy before closed curtains. By letting them be the voice, you can better concentrate on the commercial side of things, while your legal interests are protected. Having your lawyer take care of things can show the other party that you “mean business” and, why not, even be a little intimidating. Which is not necessarily bad for business, right?

7. Get legal help

Last, but not least – you should hire a lawyer,especially if the contract is of big value for your firm and you want to make sure that things go as smoothly as possible. Many lawsuits and “business break-ups” could have easily been avoided if the parties had hired legal professionals to take care of their business, instead of trying to do everything themselves. We cannot be good at everything in life, and law especially is very tricky terrain. Legal provisions are complex and also they suffer many changes in time.

Also, if you decide to hire a lawyer, make sure he is specialised in commercial law and, if possible, even has some experience in similar projects as yours. A divorce lawyer can strive to figure out contracts all he wants, but his work will never be the same as the work of a counsel with experience in this field.

So chose your lawyer wisely. And then just let go, relax and take your business to the next level it deserves.

 

Do you want additional information or would like help with your contractual matters? Contact us at office@rrpb.ro or use the contact form on our website at www.rrpb.ro.