Do I really need to read that entire contract?
If you're running a business or frankly, you're in any kind of organization, chances are you deal with contracts all the time. When you first start your business, it's really important that you work with an attorney on your first contract. That contract will probably evolve over time. Hopefully, it's gonna grow with your business. And as you get bigger and you have different issues, that contract can be constantly updated so that you have the best version for you and your business. However, when you're starting out, you probably don't know what most of the issues are. You're not sure where you're going to run into problems with customers. And that's why it's important to work with professionals to get a good first foundational contract for your business business. After that point, we can then go back and tweak it and you'll probably understand it, and you won't need an attorney to review every single contract revision with you. But when you start out make sure you understand your contract.
Terms in Your Contract
You would be amazed how many business owners sit down and meet with an attorney and they have no idea what the contract says. They probably know a couple of terms like how much money they're getting paid, and maybe what they're supposed to do. But do they dive into the rest of the contract provisions? Do they understand what they really signed? And sadly, and don't be embarrassed if you're in the same boat, most business owners don't necessarily understand the entire contract, especially new entrepreneurs who are just starting out and have never dealt with contracts before.
I want to make sure that all of my clients understand any document they sign whether it's a business contract, whether it's an estate plan, it's your document and you need to understand what it says.
- The first contract area you really need to understand is how long does it last? Is it a one-year contract? Is it a two-year contract? Does it automatically get renewed? Does somebody have to send a notice to renew it so you want to make sure you know how long that contract lasts?
- The second provision that everyone pays attention to, and you probably know off the top of your head, is what are the payment terms? How much are you getting paid under the contract? Or how much are you paying someone under the contract? While that number at first may be straightforward, there can be other provisions in the contract that affect how much you have to pay or how much you're getting paid.
- The third type of provision you want to look at is what are you expected to do under this contract? Is there an exhibit a with a scope of services? Are the services actually described in the contract itself? But however, you're going to deal with that and your contract, you need to understand what is expected of you under this contract.
- The fourth area which is really important to businesses is your intellectual property. If there are copyrights, if there are trademarks, there's customer lists, their specific software that you've created, who owns that intellectual property, if you're going to let somebody else use it on behalf of your company, you want to make sure you have the right provisions so that you don't accidentally sign away your ownership to them and they take it and go to your competitor and use your intellectual property.
- The fifth area to look at is termination. How can you end the contract? If you're not happy with what's going on? Can you just end it? Do you need a reason to end it? Do you have to give them notice and wait 30 days or 60 days or 180 days before it actually ends? It's important to understand how you get into the contract as well as how you can get out of the contract.
- The next area to look at is liability and indemnification. What happens if something goes wrong? Especially if you're in a line of business working with subcontractors. What happens if one of them messes up? Who is the person that's liable for that which party? And indemnification is a big legal word that a lot of business owners don't understand. Indemnification is if somebody sues you, you're gonna cover somebody else's liability so that they're not liable. And the indemnification provision is very important in any of your contracts.
- Also, look at whether there are tax issues that you need to worry about if you're trying to choose between an employee and an independent contractor? They both have very different tax consequences. And you want to make sure you understand what those are under that contract.
- One that people don't always look at is what's the governing law. So usually near the end, you're going to have a provision that says governing law or jurisdiction. And what that tells you is, if there's a problem under the contract, if somebody has to sue somebody, where does that lawsuit have to happen? If you're located in New York, and you're working with somebody in Idaho, and your contract says that you have to sue somebody or mediate a dispute in Idaho, as a New Yorker, that's a big trip to go all the way out to those Idaho courts to deal with that. So if you're going to sign that contract, you want to make sure that you understand what that provision says.
- The final clause you want to make sure you're looking at these days, especially after the last couple of years, is the force majeure clause. This is what happens when some catastrophic event happens. What does the contract say? Who's liable? What do they have to perform? For years, we have had these clauses in these provisions. And one of the terms in there is what if there's a global pandemic? And for years, everyone said, don't worry about it. It's just in there, there won't be a global pandemic. Well, here we are. And what does your contract say about what happens? You can't get any supplies because the supply chain is broken because of the pandemic What are you going to do next? What does the contract require?
Next Steps
Work with your professionals, contact an attorney, even if you don't want to have the attorney draft the entire agreement or you're the one receiving the agreement from a customer or from a supplier, sit down with an attorney, pay for that time for them to review the contract with you to make sure you understand what you're signing. Because you don't want to be caught off guard down the road when you think everything's great and then you find out you're not getting paid anything because you didn't follow the terms of the contract. If you need help with your contract, you can set up a Legal Strategy Session. We'll talk for 15 or 20 minutes about your current situation and give you some best options for the next steps. I know they can be long and they can seem convoluted, but it's very important that you understand those contracts that you're signing for your business.
