When parties enter into a contractual agreement, they expect all parties to make good on their commitment to honor the contract. But often contracts are hastily written and do not properly address future concerns. Addressing these issues during the drafting and negotiating process will help avoid costly litigation and increase the chance of a favorable verdict or settlement if you must go to court.
Due diligence
Neglecting to investigate and better understand your prospective business partner can be a costly mistake. A calculated business risk does not mean you can fail to do your due diligence no matter how much pressure you feel to complete the transaction. Take the time and effort to research the financial credibility of your proposed partner and look for any warning sign. A complete review of the other party may not be feasible, but the contract should include provisions to handle inaccurate representations or contractual assumptions.
Powerless promises
Business transactions boil down to finances. In order to protect your money you want to make sure your contract is legally enforceable. A promise is a noble concept, but promises are easily broken. A verbal agreement is a poor substitute for a written contract signed by all parties.
A thorough contract does not take away from the underlying goal of the business transaction; rather, a contract allows the business to move forward seamlessly. Writing a comprehensive contract prepares the business to succeed even in the event of uncertainties. Also, make sure to have the contract notarized to prevent disputes.
Consider breaches
After you have decided to enter into a business relationship with another party you need to consider what would make you want to end the relationship. Worst-case scenarios are rarely self-fulfilling prophesies because taking the time to identify possible problems and solutions helps avoid the issues altogether. The problems are dealt with in advance rather than reacted to after-the-fact.
Termination opportunities
Failing to consider clear termination opportunities for all parties could leave you trapped in a contract. All parties should have the opportunity to end the business relationship even if a contractual breach has not occurred. A party does not need to commit a misdeed in order for you to want to move on. Sometimes the relationship is just not working out as expected and you want to end it.
Dispute resolution strategies
Not including dispute resolution strategies could leave you stuck in litigation. Litigation costs for civil disputes decided by a judge are expensive and time consuming. If you do not want to spend money on litigation costs, consider mediation or arbitration first. Additionally, your resolution strategies should address where the resolution will take place if you are working with out of state or international business partners.
Relying solely on cooperative spirit to achieve common goals is a surefire way to leave your business unprotected. Spending money on a well written contract before entering a business transaction just might save you money in the long run.