Business contracts are an important part of operating any enterprise. These documents serve as the guidelines by which you will enjoy mutually beneficial relationships with your partners, vendors, subcontractors, and more. Today’s tips can help you better understand the purpose of these legal documents and how to best enter into an agreement that’s binding and fair for all.
Do I Really Need A Legal Contract?
In a nutshell, yes. Say that you open a business with a friend. You both agree that one of you will put up more financial capital and the other more time and effort into running the business. For this, you agree to split your profits 50/50.
However, despite your financial injection, your partner chooses to pay themselves a share of profits proportional to the time they put into the business. In this case, you may have a difficult time proving your verbal agreement. Keep in mind, however, that verbal agreements may be enforceable; they are just more difficult to prove.
A legally-binding contract will clearly spell out each of your roles and responsibilities, compensation, and expectations so that there’s no question of who gets what.
A Partnership Agreement Should Be Your First Document
With this thought in mind, it’s smart to create a general partnership agreement before you begin your business together. This is an unincorporated structure that outlines business responsibilities and, when written well, can help you overrule your state’s local default guidelines, which may or may not be in your and your partner’s best interest.
When drafting a partnership agreement, you will need everyone’s full legal name, their financial and physical contributions, expected administrative and managerial duties, and a list of procedures you expect to follow. This agreement offers simplified taxes, and you won’t have to file an annual report.
E-Signing Versus Physical Signing
Before the advent of the internet, contracts had to be signed in person, and this often required a notary to witness the event. While this is still common practice in many areas, you may want to try e-signing documents. This is more convenient, and you can use a tool that allows you to sign an editable PDF document, which can then be stored and shared securely.
There are many rules and regulations that go into electronic signatures, and these types of documents can easily be tracked for unauthorized changes. Keep in mind, however, that different countries may have different enforceable laws when it comes to e-signatures. However, the vast majority require, at minimum, that there be intent to sign electronically, a digital audit trail, signature protection, multiple copies, record retention, and an opt-out clause.
Your Words Matter
When drafting a legal document, it’s important that both parties understand the agreement completely. While it’s smart to have the document drafted and reviewed by an attorney, make sure that the wording is such that there is no question on meaning or interpretation. In this case, it’s better to use more common language instead of legal jargon. The goal is to have a complete understanding of each other so that there is no question of your intent and responsibilities.
Ultimately, having a legal agreement in place is one of the best things you can do for your business, whether you are a one-man show or a multi-level corporation. And whether you choose to electronically sign your documents or stick with an in-person signature and handshake, having a tangible and relatable agreement in place is one small way you can protect your interests and that of your business.
Contact Goodin Abernathy
If you’re a business owner or entrepreneur, it’s crucial to have a trusted legal partner on your side to help you create and review legally binding contracts. Goodin Abernathy law firm can provide you with the guidance and expertise you need to protect your interests and those of your business partners. Contact Goodin Abernathy today to learn how their team of experienced attorneys can assist you with your legal needs.
Many clients visit or call asking me to evaluate problematic business contracts or rental agreements. Often my they are surprised about what the contract terms actually mean. Worse, there are times we discover the contract or other party’s promises are fraudulent.
Please learn this lesson from my experience with so many clients: Don’t be cheap at the beginning of a deal – Visit me, Lic. Jim Browne, to review the business contract, home purchase or lease before you sign it.
At Goodin Abernathy / Legalmente Hablendo Indy, many of our Hispanic clients admit they wanted to avoid using an attorney to save money. I understand that idea – it’s reasonable to think that way. But ALL those same clients acknowledge that if they spent a little money for a legal review before entering their agreement, it would have saved them a lot of frustration, time and money.
Many Latinos enter Rent-to-Own contracts with the idea they are slowly buying their house. The concept, as they understand, uses their rent money to pay off the house. Before signing one of these agreements, make sure the seller also legally owns the house. Do they have the legal authority to sell you the property? Last year I saw an example involving total fraud. The seller did not own the property and collected my client’s $6,000.00 down payment. When they tried to move in, the locks were changed so they contacted the seller. He lived out of state and they did not have his address. He wanted more money for them to move in. Surprisingly, the young couple paid more money. Then, the seller asked for even more money and that is what finally made them think it was a scam. You should meet the seller in person and have their address. If they do not live in the same town or state where you are buying the property, take further steps to verify the ownership. You can check the county government’s records to match the seller’s name with the property’s title. Check if there are other mortgages, liens or taxes owed on the property. If there are, you need to make sure the seller is paying those obligations. If not, the seller will have your money and the lender will keep your house. You can find more information about rent to own fraud here: What you need to know about rent-to-own deals. Then see me for a specific review of your situation.
Business Lease Agreements
Individuals and small companies usually rent office space. One type of rental agreement, or lease, includes the terms for a “Triple Net” obligation. This means the renter makes a monthly payment. Then, at the end of the year, the landlord charges the renter additional money for other costs like property taxes, insurance, mowing, maintenance repairs, snow removal and other costs. This usually amounts to three or four times the cost of the monthly rent. If my clients don’t pay, the landlord changes the locks and denies them access to their equipment or business supplies.
Kitchen Table Contracts
Frequently, individual sellers and buyers sign a short contract over the kitchen table. My buyers think the contract is sufficient to protect their financial investments. Usually the agreement fails to address equipment inventory, describe the payment plan or handle many other practical terms they should have requested for a reliable purchase. Rarely do kitchen table contracts succeed.
Loans to Friends and Family
Monthly we get calls where a client asks if he can legally collect the money he lent a friend or family member. The first question is – Did you put the loan in writing? If not, the borrower may try claiming it was a gift. Besides friends and family, I see this a lot with individuals trying to buy or start restaurants. They will invest money to become owners but not have a written agreement. Usually they lose their money and are left empty handed. Get a written loan agreement signed. It should have terms like the length of the loan, repayment plan, interest, penalties, default provisions and litigation costs.
My clients who are subcontractors start jobs expecting to get paid. Sometimes, they do not ask for written terms and hope to get paid. During the job, they pay for materials and equipment, travel and the cost of their own workers. Then when the job is finished, the contractor that hired them claims the property owner or general contractor did not pay – and often that’s a lie. These contractors frequently disrespect my Hispanic clients, threatening litigation or immigration problems. I also see this a lot with apartment complexes. They hire my clients to paint, clean or remodel many, many units. The apartment managers change and the new managers avoid paying the money owed. Or, the apartment managers claim the work was poorly done.
You work hard for your money and envision improving a future for you and your family. Protect yourself against the risk of loss.
Paying for a legal review BEFORE you enter a contract protects you against much larger heartache and financial loss later. Our legal review will be simple and communicated in terms you understand. We will help you think through the contract language that protects your business. Then, if you need me, I’ll help you negotiate the contract for a better result.
Contact Attorney, Jim Browne, by phone at (317) 843-2606 or submit an e-mail inquiry through our website.