Business Contracts Explained
Business contracts are as important to the business world as the rules of play are to a game. A business contract is a written agreement between two or more parties containing some types of legal obligations that form the terms between two or more parties. The two or more parties can be individuals, groups, or companies. Contracts can be negotiated, created, and closed between parties in many places, such as a conference table, board room, or over a meal.
Contracts come in many forms and are not all the same. Employee contracts can lay out the expectations and responsibilities of new hires. Vendor contracts, such as those for coffee service, can bind a company to supplying its services for an extended period of time. Contracts with other companies can be for the purchase or sale of goods over time. Construction contracts are typically complex documents laying out carefully the details of a project. Even marriage is now typically a contract between two parties.
Business contracts are often traditionally for specific deals, services, or work performed over a period of time, but in the Internet-driven society today, there are many more uses and purposes for business agreements. Therefore , it is imperative to have the correct detail and content in the overall agreement. Any missing elements could mean that a key party does not have some form of contractual protections. There are many nuances to a contract, which is why it is often suggested that you consult with a contract lawyer to undertake your contract negotiations and preparation.
There are many types of business contracts, such as those for consulting, joint ventures, employment, distribution, and leverage buyouts. Any confidentiality issues and protecting your ideas, products, and brand are often handled by non-disclosure agreements. If you are a foreign national doing business in the United States, particularly in the entertainment industry ("Hollywood"), it is unlikely you will be offered an undefended agreement. Such agreements, while often very long, detailed, and generally one-sided to benefit the party who drafted the agreement, as a practical matter do serve a very profound purpose.
For both sides, if you don’t have a lawyer or agent/manager, be sure that you independently get advice before signing any business contract. If you don’t know any contract lawyers personally, you can easily check online to find many contract lawyers near you. An online search can also tell you the best-rated contract lawyers and their respective backgrounds.
Role of a Lawyer in Business Contracts
The role of a lawyer in business contracts can be quite complex and demands discretion. A lawyer must start out by understanding the contract’s objective. This is usually spelled out in a term sheet or detailed letter of intent. Then the negotiation of the terms begins. Only after complete agreement on terms has been reached, should the lawyer begin to draft a contract or form of agreement. A good lawyer will know how the contract should look from a form perspective and from a substantive perspective. The lawyer must be aware of both legal and business risks and the law that can govern performance. It may not be necessary to include every single term that may apply in a particular transaction but it must be clear to all parties what their responsibilities are and what will happen if one party does not perform. The contract will usually spell out the scope of work to be done, payment terms, performance schedule and deadlines, termination rights of the parties, remedies for breach of the contract and what law would apply if there was any dispute. It is important for the drafting lawyer to understand the underlying deal as well as the relative bargaining positions of the parties and to insure that the contract reflects the outcome desired by the principal. A lawyer cannot always predict the future impact of a contract. Certain future developments may arise that impact the contract in unexpected ways. A lawyer cannot and should not be expected to predict every possible scenario and insure that the contract will continue to work. A good contract negotiator will negotiate reasonable business terms and then provide for alternative outcomes in the event that a set of unforeseen circumstances occurs.
Characteristics of a Good Business Contract Lawyer
When selecting a lawyer to assist with business contracts, there are several critical qualities that you need to look for. Since commercial contract law is a highly complex and specialized area of the law, it’s really best to develop an ongoing relationship with an individual lawyer with proven expertise in the field of business law. Being able to tap into an established relationship is a far better experience than bringing in an unfamiliar lawyer who has to become acquainted with your case.
Expertise in commercial contract law goes a long way toward being able to resolve contractual disputes which frequently arise in business relationships. A good commercial contract lawyer has been through many of the trials and tribulations you might face, and can be an invaluable source of insight on difficult negotiations when writing contracts as well as resolving contract disputes for businesses.
The experience a good commercial contract lawyer brings to the table helps him or her to be able to make smart decisions during the contract negotiation process. If you pass up hiring a commercial contract lawyer until after a contract dispute has arisen, you will find yourself at a distinct disadvantage throughout the life of the legal matter, and you will lose leverage for a fair settlement of the issue.
Communication skills are the other major quality you should seek in a commercial contract law firm. Contracts are built around words and the meaning they carry, but this aspect of contract negotiation gets lost in the shuffle sometimes. The clarity of a contract can be a decisive factor in determining whether a future legal dispute will ever even arise. A good commercial contract lawyer can help you to avoid future problems by providing clear, unambiguous language which can help to prevent costly litigation over contractual disputes down the road.
How to Hire a Contract Lawyer
Some steps to follow for hiring business contract lawyers are:
Identify your requirements
When getting ready for hiring a business contract lawyer, individuals or firms put together a document that outlines what the job requires. Drafts of contracts, how much time they expect it to take and what they think the lawyer’s actions will entail should be outlined.
Determine particular requirements
Although no draft contract is required, determine general types of contracts needed and whether the documents require clauses pertaining to several states or specific industries or how services are provided and so forth. Assess any changes that are expected including new services offered or if the products sold will change.
Determine which type of lawyer
Determine what type of lawyer is needed for the business to operate adequately. It could be that a contract lawyer is required to help standardize contracts or an attorney who has the capacity to write contracts. However, consider the costs when hiring a small-mid sized law firm or a large law firm where several departments may have to be consulted. Several larger firms have been known to hire "of counsels" who are mostly retired lawyers that had shorter handles on the firm.
Attorney fees
Choose at least one to two firms and make initial calls on rates. Because experience is important with this type of work, request resumes from the upper tier of your choices. If availability to do the work is a prime requirement, then you want to make sure they will be available to handle the load. Also, ask about payment and its terms so you are well aware of how the system will work.
Advantages of Hiring a Business Contract Lawyer
There are significant advantages to using a business contract attorney. Failure to use an attorney can lead to problems for your company. The following are some of the benefits you can achieve by using a lawyer.
Risk Mitigation
Some companies believe that it is not worth having an attorney review their contracts. They think that the risk is minimal if a problem occurs. However, when business contracts go wrong, the damage can be immense.
If a contract goes badly awry, it may require many hours to correct the problem. This can hurt you financially and slow your company’s growth. The costs of fixing the issue may also be large. If the individual on the other side of the contract is unreasonable, they may sue your company for damages. In the worst instances, companies have been put out of business because they failed to get good legal advice prior to entering into a business contract.
Proper Contract Terms
Occasionally, companies may use the "fill in the blank" method of completing contracts. This can be a mistake . The other side may have a better understanding of how the contract will be written and act accordingly. Doing this can lead to expensive issues later on and hurt the business.
When using an attorney to draft business contracts, you can ensure that the contract terms are written in your favor. You may want the ability to terminate the contract with prior notice if any default occurs. You may also wish to avoid the fine print, which can be included to penalize you later on if a default occurs.
Termination Rights
Can you readily terminate your business contract? Do you and the other side have mutual and reciprocal termination rights? Can you get your money back if the person you entered into the contract defaults? These are some questions that a business contract attorney will ask.
In some cases, a business contract may be so lopsided toward one side or the other that it is simply not worth signing. A business contract attorney knows what is fair and what is not and can advise you on what the best course of action.
Common Problems with Business Contracts
Regardless of the size or scope of your business, whether it’s large or small, young or old, there are several common pitfalls to look out for in your contracts. A lawyer can help bridge the gap between the plain language of the contract and the legal language that offers protection and recourse.
Non-breach or Limitation of Liability
Provisions disclaiming liability for non-breach are very common in business contracts. For example, a typical clause will state that a party is "not liable for consequential, incidental, indirect, special, or punitive damages arising from this agreement." While every party wants to limit their liability, these kinds of disclaimers can be interpreted very broadly.
What to do: Ask your lawyer what this clause means for you under the law. In some instances – usually related to products that cause bodily harm – the law may not allow the excusing of liability for negligence or fraud.
Indemnification Provisions
Indemnification provisions are very common in commercial, real estate, and financial transactions. These provisions transfer risk to another party by offering to make the other party whole if unforeseen problems arise. However, like other provisions that excuse liability, indemnification provisions can be written too broadly, requiring a party to pay for the other party’s negligence or failure to perform.
What to do: Ask your lawyer whether the provision permits indemnification for indemnification for negligence as opposed to gross negligence or intentional conduct.
Arbitration Clauses
Arbitration clauses are intended to offer a legally-enforceable short-cut to readressing a grievance and provide an alternative to litigation in court. However, if a particular provision is deemed illegal or unenforceable, it may take down the entire agreement. The dilemma then becomes possible inconsistency with the parties’ intention to seek arbitration.
What to do: Ask your lawyer whether the particular provision negotiated provides that binding arbitration is the exclusive remedy.
Forum Selection or Choice of Law Provisions
Many business agreements have choice of law or forum selection provisions that give the parties a chosen jurisdiction for dispute resolution. These provisions are often included by larger companies so that they can choose the forum with which they are most familiar. However, such forum selection clauses can be unconscionable, especially if the smaller party is a significant distance away from such forum.
What to do: Ask your lawyer whether the proposed forum or choice of law provision is enforceable under the law. In some states, such contracts may be unenforceable.
Cost of Hiring a Contract Lawyer
When working with a lawyer to draft or negotiate a business contract, the first question most people ask is about costs. While it’s usually not a good idea to select a lawyer based on fees alone, it’s prudent to understand how legal fees are assessed and any factors that could influence those fees. Contract lawyers usually bill either on an hourly basis or with flat fees. Hourly fees often run from $200 to $600 an hour, although less than this is typical in smaller towns. Lawyers in large law firms tend to charge by the hour instead of flat fees. Flat fees are more common for contract lawyers who work with small businesses because they often have a clear idea of what their services will include, and the time it takes to do these tasks. For example, the cost to draft a warranty for a product may include drafting, reviewing the document with the client to confirm the expectations of the company, and email exchanges after the initial draft to make any necessary revisions. A contract lawyer with experience in this field may easily predict the lighting bolts in the sky so to speak for this type of agreement and tell you about how the work will likely unfold.
However, factors such as speciality, experience, location, and billing method can cause variation in cost. A contract lawyer who handles a large volume of transactions in a niche area in a major city will likely charge a lot more than a generalist who doesn’t have the same experience. Likewise, if your company needs immediate help after hours or on the weekend, that lawyer may try to assess a different fee schedule while the project gets done.
Hiring the Right Contract Lawyer Near You
When searching for a qualified business contract lawyer in your area, there are several resources available to you. Start with online legal directories, which can be a useful tool for finding lawyers who specialize in business law. Websites like Avvo and FindLaw allow you to narrow your search by practice area, location, and ratings.
Local bar associations also maintain lists of lawyers who specialize in business law. These organizations often offer a lawyer referral service that provides the names of lawyers who have experience with business contracts and who are in good standing with the state bar.
Professional associations, such as the American Bar Association’s Business Law Section or the American Society of Administrative Law and Regulatory Practice , can also be valuable resources for finding lawyers who focus on business contracts. These associations feature directories of their members, many of whom are experienced business contract lawyers.
Additionally, you may wish to consult colleagues and friends for recommendations on a business contract lawyer. Personal referrals are often beneficial, as they provide first-hand knowledge of a lawyer’s capabilities.
It is essential to take the time to find a lawyer who will provide the advice and representation your business requires. A business contract lawyer with expertise in the particular field of law you need – whether that be contracts, employment agreements, or corporate governance – will be able to guide your company on its growth journey.