Contracts Shmontracts: Why Getting It in Writing is the Best Legal Protection for Your Business by @ElizabethPW

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So you think that you and your client can just “shake hands” to do business together, and it will all magically work out?

That you and a colleague can do that joint venture with no problems, based on your long friendship and the honor system?

As romantic as it is, doing business via “shaking hands” is opening you up to misunderstandings, dashed expectations, unpaid fees, and legal liability.

All business relationships need a written contract.

The purpose of the contract is to manage the expectations of both parties, so you can have a smooth transaction and continue to have a wonderful working relationship.

In this contract, you’ll state exactly what both sides will do, what happens if it goes wonky, and what happens if one or both of you want out. It’s important to agree to everything now – when you’re still optimistic and believing the best of each other.

Even if you have a long relationship with the other business – especially if you have a long relationship – there could be bumps in the road. You could suffer economic or life changes out of your control, such as one of you becoming ill. Such bumps could ruin your relationship, if you don’t address those potential issues now.

The other purpose of the contract is to protect you.

If the other side doesn’t deliver on their promises, become difficult to manage, disappears, or just goes wacky, you want to have pre-thought and pre-negotiated what happens so you’re not left with zero options. You want them clear on the ramifications of their breaking the contract (which may help them to decide to not-break the contract). And, you want to know exactly what steps to take to protect your creations, money, and business.

What you need to address in your contracts:

Exactly what you will do, what they will do, and what no one is allowed to do. This is where you write down all of the expectations and rules of how this transaction is going to work. Don’t assume anything. Feel free to include things that you may not be able to enforce in a court of law, if they will help the relationship work well. For example, in my contracts, I require my clients to tell me the truth and inform me about new programs before they launch them. While I doubt I’d ever sue a client for lying or holding back, it does remind them that I can’t help them unless they tell me the full story ahead of time.

When they are obligated to pay you. Paying you isn’t optional. Even if they are not happy with the article you wrote (or, if they decide they don’t want to do this project after all), that doesn’t mean they can just reject your content and not pay for your work. Even if they decide to not start this business after all, it doesn’t mean they can reject the  website you created and do a chargeback on their credit card. Creating sign-off points, deadlines for feedback and changes, and other specific opportunities for them to accept or reject progress, helps to protect you from late-in-the-game opportunistic rejections and refusals to pay.

Who owns what. If you’re creating a graphic, writing an article, taking a photo, or making a website for someone, who owns it? It may be a “work for hire” – where your client owns it – or you may still own the copyright on the work, and your client only gets a license to use it. You also need to address any content they give you, such as stock photos, music, videos, or written content, to make sure that they are the ones responsible for obtaining rights to use it.

What happens if one or both of you want out. If your contract is over a long term (months or years), it’s likely that one or both of you will want to move on, at some point. So what happens then? Who owns what you created together? Who gets the assets, and who pays the debts? This prenuptual-type agreement is the perfect time to decide how the breakup will proceed – because even if you decide to not go on doing business together, you could still be friends or respected colleagues.

Where would litigation occur. All contracts should state which law applies to the contract, pick a venue for any lawsuit to happen, and state whether mediation or arbitration will be required before anyone files a lawsuit. This is especially important if you are doing business with someone in a different location (especially a different country!). Ideally, write this section so you can file an action in your own area, and not need to hire an attorney in a far-flung jurisdiction.

Getting paid ahead of time. If you’re providing a service (especially a custom service) for your clients, negotiate to get paid sooner rather than later. It depends upon the laws and customs of your profession, but getting a 10-50% deposit will help limit the risk you will incur by doing custom work that may or may not be rejected or delayed, out of your control. You may also choose to work on an annual or monthly retainer (that’s how I work with my clients), which means you get paid automatically, whether or not your client delays on making their decisions.

In a perfect world, everyone would have access to an attorney to help them draft contracts. But if you don’t, even just writing things down yourself (and having both parties sign it) is an improvement on a hope, a random telephone call, or a shaking of the hands.

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About Author

Elizabeth Potts Weinstein of EPW Small Business Law PC is a small business attorney who helps small, one-person businesses transition from a big idea or a hobby business into a real business. For $150/month, she’ll be your outside General Counsel, handling all your non-litigation legal needs (contracts, incorporation, trademarks, copyrights, and other business legal advice). As your lawyer, she’s on your side — so you can do it right the first time around. Get her weekly small business law tips on Facebook at http://www.facebook.com/smallbusinesslaw and on her website at: http://www.elizabethpottsweinstein.com/

1 Comment

  1. Great advice Elizabeth. I remember from class that in real estate if it is not in writing it does not have any meaning. Guilty of not having a contract with my client. I do SEO, build websites, and create logos. If we do a joint venture project, it will be in writing for sure and include all the things you mentioned in this article.

    On a side note, I have negotiated $500,000 contracts with a handshake. I followed up with an email stating the agreement asking the other party to reply to the email. I agree.

    @ClayFranklin

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