Is Your Contract Agreement in Writing?
I was contacted by a friend last month. She and her business partner were considering a drastic change in their relationship and they wanted my help. I asked her if they already had the contract agreement that defined their relationship and responsibilities. She sheepishly paused before admitting that two years earlier another lawyer had drafted some documents.
The documents were full of legal jargon and boilerplate paragraphs which they didn’t understand and they weren’t even sure those issues applied to them. One document alone was over 30 pages of fine print. They had been afraid to sign on the dotted line and now that they were at a crossroads where the contract agreement was needed, they had nothing as a guideline.
I spent a few hours with the business partners, sorting out the agreements they’d already made between them, writing those down, and figuring out how the new changes would be handled. We wrote up the new agreements and they breathed a sigh of relief. Their friendship was preserved and so was their business. They had a plan that worked for both of them.
Policies, procedures, operating agreements, shareholder agreements, and contracts are all legal documents that are designed to make your business work! They’re there to serve you and the business.
1. Use plain language that everyone can understand.
My client’s initial embarrassment was misplaced. In the attempt to cover everything, boilerplate documents don’t fit anyone. Legal jargon doesn’t clarify issues for nonlawyers, it obscures meaning and sometimes prevents people from keeping the agreements because they don’t understand what they are supposed to do. My friend shared the unsigned agrements. With over 20 years as a lawyer, I still had a hard time deciphering what their documents were trying to accomplish in some paragraphs. How could a business owner with no legal training possibly use this agreement to run her business?
2. All business documents should be working documents that serve the business.
Contracts, policies and procedures are about creating clear understandings so everyone can work together better. A contract agreement should be flexible and organic, to the extent possible. If there are only two partners and they’re working together every day, changes to the agreements may be constant and responsive to the changes that will happen in any new business. If a business has multiple owners in different locations, the contract agreement helps to ensure that one partner does not go off in a different direction and that changes can be on an agreed-upon schedule, at quarterly or annual meetings, for example. Nowadays, in the eCommerce era, location hardly matters, ink and paper signatures are being replaced by electronic signatures, the Beginner’s Guide to Electronic Signatures might be a good start if you are still navigating e-signatures.
3. They should cover what is necessary, especially how you will resolve conflicts.
It is important to create a foundation of good, understandable contract agreement in the beginning of a business relationship. How will profits be divided? Who will be responsible for making sure that taxes are filed? Much of the skeleton of a business agreement will be just writing down what you have already talked about. Legal documents are written records of what is agreed and sometimes what is un-said but assumed. They help us see what was not understood and to clarify.
The trouble with a lot of boilerplate is that it attempts to predict every possible issue that could come up but almost always fails. Legal documents should cover the most likely issues then create a plan for how to handle the unlikely ones. The likely events will vary with the type of business and the circumstances. A personnel policy that prohibits hiring family members is irrelevant in a mom and pop business but may be important to think about in a less personal environment where family relationships could complicate matters.
A business is like a marriage and can be very intimate. Deep hopes and fears can be triggered. Conflicts are inevitable and you need a foundation for resolving them, something short of dissolving the company or heading to court in the business equivalent of divorce.
4. Focus on maintaining a good working relationship with your business associates.
Too much focus on legal documents, policies and procedures can be a sign that something isn’t working with the relationships in your business. Sometimes businesses pass more rules about behavior to try to control behavior rather than exploring the underlying motivations. Don’t lean on your legal documents and create new rules when a face to face conversation is what is needed.
5. Find a lawyer who can be your advisor
Not all lawyers are like those you see on television. Only around 2% of cases are actually settled in courtrooms. There is a whole movement toward a more holistic, system-based approach that is preventive and oriented toward meeting your needs. Such lawyers can help you avoid pitfalls and legal traps while bringing clarity and workability to your relationships. That being said, make sure you interview your lawyer to make sure they have the holistic, preventive and coaching approach to law practice. If not, find one who does.
About the author
Lawyer and coach J. Kim Wright, J.D. is the author of the best-selling Lawyers as Peacemakers, Practicing Holistic, Problem-Solving Law (American Bar Association, 2010). She is the managing editor and publisher of www.CuttingEdgeLaw.com. Her other activities can be explored at www.JKimWright.com.