Business agreements are too vital – and so are your business relationships – not to cement your agreements in writing.

Why a Handshake Isn’t Enough

I love handshakes! They’re real, personal, physical contact, and nothing can replace that. After all, when we deal with business, we deal with real people (that’s one of the things I love, in both my business and personal life).

And I understand, too, the feeling that “shaking on it” should be enough to seal the deal – after all, your word is your bond, and you’ll absolutely make good on it, no?

But:

So much can happen over the weeks, months, or years:

• Memories can fade, creating confusion as to what was actually agreed to.
• Relationships can become strained – often through no actual fault on either side.
• Moreover, even if you think you’ve been clear about what will be done, by when, and the cost (at least an estimate), there are too many times when people can hear the same words and understand them differently.

So, it’s better for everyone to get the deal in writing – and signed by all interested parties with the authority to agree to the contract.

What Does Your Business Need Written Agreements For?

I recommend – and use – written agreements for a variety of situations – a few of those you may want include:

• Operating agreements
• Client agreements
• Supplier agreements
• Employment agreements
• Partnership agreements, whether business-formative or temporary and project-related
• Business continuation agreements

There are more scenarios in which written agreements may be advisable, depending on your business and the individual circumstances.

What Written Agreements Can Do

Written agreements can:

• Ensure that you and your clients know what is expected from each party.
• Set forth pricing, whether estimated or firm.
• Set timelines for completion of each party’s responsibilities.
• Ensure that your employees know the terms of their employment, how compensation is determined, and how evaluations will be conducted.
• They can give all parties the chance to hash out any differences up front, make any needed amendments, and ensure that everyone is on the same page before the agreement is signed.
• In the unfortunate event of disagreements (up to and including litigation), written contracts provide clear guidance to an arbitrator, mediator, or judge. It’s a lot harder to sort out conflicting interpretations of oral agreements than written ones.

The Best Written Agreements . . .

. . . spell everything out, clearly and in detail.

For client agreements:

• The precise terms of the engagement – what you will do, by when, and under what governing standards, if any.
• What all parties will, and will not, be responsible for.
• What the timing needs to be – and what happens if deadlines aren’t adhered to.
• What the services or products will cost. If an estimate is appropriate, how will deviations be dealt with – I recommend that, if estimates look like being exceeded, written notification beforehand should be the minimal standard.
• What payment terms are, and any penalties for failure to comply with those terms. If you are the one being paid, you can waive application of those penalties if you choose, but it’s not a bad idea to create some sort of incentive for paying you on an agreed-upon basis.
• How any disputes which cannot be resolved among the parties will be handled (e.g., mediation, arbitration, litigation). Set forth any applicable authorities for your choice of resolution method.
• Any other engagement specifics should be included.

 
For employment agreements:

• Whether the employment is open-ended or limited to a specific project or time period.
• Whether the employment is at-will, or subject to other arrangements.
• What compensation will be, and how any increases will be determined (e.g., cost-of-living, performance-based, etc.).
• What possibilities, if any, for promotion are involved, and what the employee needs to do to be eligible for such promotion(s).
• Absolutely include any non-disclosure requirements – this is a must when your business deals with personal, confidential, and/or sensitive information.
• Any non-compete or non-solicitation clauses that are appropriate and allowable under current law.

Other types of written agreements can be more complex, with much depending on the individual business.

In general,

Partnership agreements should specify:

• Cash contributions expected of each partner.
• Percentage of ownership for each partner, and how that relates to cash contributions.
• Distribution of profit or loss (in most cases, this will be tied to percentage of ownership).
• Length of the partnership, whether open-ended or when any limits of time or project accomplishment will apply.
• What decision-making procedures will be, and who is to be responsible for what decisions.
• Which partners hold authority in which areas.
• What will happen if a partner leaves, whether by choice or circumstances such as illness or death.
• How any disputes will be resolved.

The above is, of course, only a brief overview of the importance of written business agreements, and what you may be well-advised to include in certain types of written agreements.

We cannot overstate the advisability of consulting an attorney before drawing up templates for all written business agreements, and again in the event of specific and unusual provisions to your general agreement terms, as well as to unique written agreements which may be necessary for your business under certain circumstances. If your business is itself a law firm, seek counsel on written agreements from outside your own firm, to ensure you obtain objective guidance.

We know and work with a number of exemplary, highly-seasoned business attorneys, and would be happy to provide recommendations, if you don’t have such an attorney already.

If you would like such a recommendation, or if there is any other way in which RFG can be of assistance, please click here to email us directly – helping you make the most of your business is why we’re here.

Until next time –

Peace,

Eric