Stay OUT of Court! Good Documents Can Save Your Business

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Jan Matthew Tamanini

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Business Attorney - Harrisburg, PA

Contributor Level 14

Posted over 5 years ago. 5 helpful votes

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1

Use plain English.

Your important business papers should be easy for a reader to understand. If your contracts are clear and unambiguous, you're less likely to get into disputes. And when a dispute does arise, having well-drafted provisions will save you time that otherwise might be spent fighting over ambiguous terms. If the person who prepares your documents insists on using tons of archaic terms or "legalese" rather than words you commonly use in conversation, you might want to consider finding someone who will prepare documents you can understand WITHOUT an attorney to interpret them for you. And if you're a "do-it-yourself" person who thinks it's impressive to use such terms, think of how impressed you'll be when someone on the other end of a transaction sues you, or argues what a particular provision means. After all, a contract has to be a "meeting of the minds" of the participants to be legally effective. If there is legitimate confusion over terms, you're in trouble - period.

2

Okay, you say use plain English - so what the heck is "force majeure" and why should I have this provision in my documents?

"Force majeure" is a term (literal translation: greater force) used for contract clauses that you can use to protect your business in the event of strikes, natural disasters, acts of war, or other unusual events beyond your control. These clauses excuse performance under a contract if a party using reasonable care could not avoid a result. Including a "force majeure" clause in your contracts protects you in the event an unavoidable or unforeseen event prevents you from delivering on your promise. You should note, though, that the clause generally applies to all parties, not just one side. Now - just because you should have a "force majeure" clause doesn't mean you have to use the term in your documents (in fact, I'd recommend against it!). Generally, including examples of the types of events that will excuse contract performance is the best way to cover this contingency.

3

Warranties: should I or shouldn't I?

To the extent the law permits (depending on your business type and your location), you might want to disclaim express and implied warranties of merchantability or fitness in your contracts. The disclaimer must be conspicuous - bold, all in capital letters, and underlined - and readily visible in your contract. Some states allow for varying degrees of a disclaimer. This is most important if you're selling a product, because disclaimers can avoid product liability claims by someone using your product in a way you never anticipated, or without regard to the product instructions. On the other hand, you might want to include a warranty or guarantee related to payment for your services/product, depending on the circumstances. If a customer isn't satisfied and you can afford to refund some or all of your payment, you just might get more business down the road than if you refuse to take returns or exchanges, or if you demand payment even if your customer isn't happy. It's a judgment call.

4

Fine print DOES matter!

Read EVERYTHING in the contracts others want you to sign. Be particularly cautious of indemnification/hold harmless provisions, but see if ANY fine print provision is unclear or undesirable. Wherever possible, negotiate changes to terms you dislike. Very few contracts are non-negotiable. Your success will depend on your relative bargaining position: if you provide unique or highly sought-after products or services, you have a stronger position than when numerous others offer the same products or services of similar quality.

5

Put it in writing!

Written contracts are almost always preferable to oral agreements, and some contracts (for example, transfers of real estate by sale or gift or assuming another person's debt) may be invalid unless they're written. In other cases, even if you agree to something orally and then sign a contract (or if you sign a contract and then add terms by oral agreement), in a legal challenge you're likely to be held to the written terms and nothing more. You should specify in your contracts that the documents are the complete understanding of the agreement and that any changes must be made in writing signed by all parties. This eliminates the drama of a challenge where one party claims that there were oral agreements that change the contract's terms.

6

Consider hiring an attorney to help you negotiage, draft, or review documents.

Finding an experienced contract attorney and paying a little up front can save months of heartache and inconvenience, not to mention wads of cash spent on litigation from poorly drafted documents. Too many small business owners get copies of documents from friends or the Internet and pull provisions they think look good to make their own documents. This is dangerous for several reasons: every state's contract laws are different, and federal contract laws are another thing again. A good business attorney will know what you need for your location and business type, plus having custom-drafted documents will avoid problems from terms you don't need or shouldn't include for your operation. If you use self-prepared documents or generic forms, take them to a transactional (document drafting and negotiation) attorney for review and suggested revisions. If you decide to use form documents rather than hiring legal help, make sure your docs include essential terms for your business operation.

7

Backup, backup, backup!

Keep copies of all of your important documents in a safe place. Consider scanning your important legal documents and using secure online storage as well as physical offsite backup in your area. Ditto for your financial records. Back up regularly (some programs will do this automatically whenever you go online). Then if your business suffers a disaster - fire, flood, explosion, or any other calamity - you'll be able to recreate your business records and pick up the pieces without worrying if you've missed something. The peace of mind this can provide when disaster strikes is invaluable.

Additional Resources

For more business document and planning tips, read my article in Affluent Magazine's Coaches Corner online at www.affluentmagazine.com/articles/article/161

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Business records

Small business records are documents recording business dealings, including accounting documents, meeting minutes, memoranda, and contracts.

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