The Wealth Spa

Do you really need written contracts in your business?

Posted on 24. Nov, 2008 by Elizabeth Potts Weinstein in Legal

Yes, you do need written contracts defining the relationships you have in your business with all other individuals and businesses.  Drafting and executing written contracts with the people and businesses you do business with satisfies two purposes.  

First, it defines the relationship.  Everyone knows what is expected, so it is less likely there will be difficulties or misunderstandings.  

Second, it reduces your costs of dispute and litigation, via clauses like arbitration and mediation, choice of law and venue, and attorney’s fees.  Arbitration is a private lawsuit, and takes less time and money than a lawsuit in state or federal court.  Mediation is a negotiation that is facilitated by a trained mediator and that may result in a settlement.  Choices of law and venue clauses give you the opportunity to pick where the potential lawsuit will be filed, and what law will apply.  

So if you are here in San Jose, California, usually it is less expensive for you to litigate here than to have to litigate in New York or Missouri.  Attorney’s fees clauses state that the loosing party in the lawsuit must pay the other side’s attorneys fees, which not only reduces your costs of defending a lawsuit, but increases the other side’s risk of filing a lawsuit.  

• Every relationship should be defined by a written contract, if possible.  
• With your partners you should have a partnership agreement, and may have a buy-out agreement, or other written succession plan.  
• With your employees and contractors you should have a written contract, or at least a written employee manual.  
• Your client and customers should sign written contracts, or be subject to Terms & Conditions as agreed upon when they purchase your products or services.  
• Your website should have disclosures, disclaimers, privacy policy, terms of service, and/or terms and conditions that govern the relationship with your website visitors and customers. 

The exact contents of each contract depends upon its purpose, but generally you want to state the names of the parties, what each side is regulated to do under the contract, the time frame, and the services, products and/or money that will be exchanged.  

Written contracts must be executed (signed) to be valid — a draft contract may not be enforceable, depending upon the subject (some contracts can be signed by email or fax).  Oral contracts are not always enforceable, especially for goods over a certain amount (usually $500) and for certain types of services.  

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Tags: arbitration and mediation, buy-out agreement, contracts, litigation, partnership agreement, privacy policy, relationship, risk management, succession plan, terms and conditions