Why should you prepare a term sheet?
This document, which will outline the basic points of your intended agreement, will not only make dealing with your attorney easier, and faster, it might even save you some money.
Identify the parties
Identifying the parties to an agreement is one of the most important steps to proper contract formation. Who signs an agreement and possibly more important, what their position in a company is, determines the extent of your ability to enforce the rights and obligations memorialized in the contract. If you will be signing this agreement, will you be signing as an individual or the representative of a company? Will your counterpart in another company be signing as well or, if this is going to be a form contract, will the other party be a customer?
What is the purpose of the contract?
Telling your attorney why you’re entering into this agreement will do more than help him/her write a title, it will give insight into the circumstances or industry surrounding the agreement. Write a short description of the type of agreement, such as “contract for marketing services related to local doctor’s office.” You may know what terms and provisions should be in your contract but an attorney will likely do some research before starting to draft the agreement to make sure it complies with industry standards and any applicable laws.
How long will the contract last?
The term of an agreement is another extremely important provision that is often overlooked in informal conversations between the parties before seeking legal advice. Will this contract be for a set length of time? A few months? A few years? Or will it continue until the parties agree to terminate the relationship? While your attorney can advise you on a favorable term for your position it is best to come prepared with at least some idea of how long the agreement should last.
How will payment be made?
Most contracts involve payment and, if everything goes well, payment will be made. If you are the party who will be receiving payment consider what form you would prefer payment to take. If you are the party who will be making payments discuss this with the other party to make sure their preferred method is reduced to writing. The method of payment will not only affect the physical act of payment it will also have an impact on terms that address late payments and possibly even penalties. Wire transfers and credit card or check payments over the phone can be made almost instantly but payments by check must be sent in advance.
Will there be penalties for late payment?
If payment is being made by check it might be reasonable to allow a few days for receipt because mail is often delayed, however if payment is made by wire transfer it might be reasonable to incur late fees even 24 hours after payment was due. If your business is depending on funds from the sale of goods or performance of services covered under an agreement any delay can negatively impact your livelihood. Late fees act not only as a deterrent to prevent late payment they can also compensate one party for expenses incurred for obtaining credit to continue operation of the business or even lost profits due to halted operation.
Can this contract be transferred?
If you’re contracting for the specific services of an individual or company you may not want to allow a transfer of the rights and obligations of the agreement but what about if one of the parties is sold?
What is the location of the parties and where will the contract be carried out?
If both parties reside in the jurisdiction where the contract will be carried out this information may not be necessary but when dealing with an entity in another state it is important to decide on the forum for legal disputes and the applicable law to be applied. Additional information, such as where the contract will be carried out, will help your attorney determine your leverage for making the forum convenient to you and your interests.
Will you be exchanging sensitive information?
Most contracts require at least one party to disclose sensitive information and trade secrets. Some of this information, such as client information may be protected by privacy statutes and any disclosure should be carefully guarded. Alerting your attorney to the possibility of such an exchange will allow him/her to include provisions to prevent unnecessary disclosure and to properly penalize any breaches.
Summary
Even a short list of key terms or contract expectations faxed to your lawyer in advance of a meeting or conference call will make your consultation much more productive.
