Updated: Oct 14, 2019
By Nancy Gabriel, Mediation Around the Table
Do you need a contract? Sounds daunting, doesn't it? You think you're going to have to hire an attorney, spend hundreds of dollars and wait weeks for the final product. And why? What happened to the handshake?
I can answer that in one word: INTENTIONS. Unless the precise intentions of each party to an agreement, or to an arrangement, are spelled out thoroughly at the beginning, there might be a problem in the future. And unless you're prepared for the “what if?” and the “what's the worst that can happen?” you might be headed towards an unforeseen, costly, and time-consuming battle down the road.
Intentions are also important if you're starting a new business with a partner. What about creating what I like to call a business prenup? It's not unheard of for couples contemplating marriage to discuss a pre-nuptial agreement. Why are people contemplating starting a business together? Makes some sense, doesn't it?
What makes a business prenup different from an operating agreement? Or corporate by-laws? Or a business plan?
Your business prenup is not a boiler-plate template into which someone inserts your names, addresses, and nature of your business. It is also not a document that you would have to pay an attorney $2,500 to generate, although you can certainly do that and it will, hopefully, be an ironclad contract protecting you from each other and from third parties. This is not a bad idea, by any means. But it might not be your first step.
As a Mediator and neutral third party, I like to talk to potential business partners about avoiding the communication pitfalls that challenge many business partnerships. What are your expectations about meeting with your partner? What is a reasonable time within which to return a phone call, a text, or an email? Instead of issuing stock and deciding upon the date of your annual meeting, I like to talk to potential business partners about loans, salaries, support staff, and family members. I like to ask questions about each party's visions and goals. I like to inquire about what the parties have considered for the use (and cost) of outside resources.These resources can be utilized for legal advice, marketing concepts, and financial planning, to name only a few. Most importantly, I like to LISTEN to the voices of people planning their new endeavor, to help them honestly and accurately communicate with each other, and provide them with some tools to continue the communication for the duration of their relationship.
Whether you're just starting out with a new business, or whether you're already comfortably established but have not yet created anything in writing, you're probably wondering whether you need a lawyer. Although I am never anti-lawyer, I'm going to suggest that you might not necessarily need one at first. If you're forming a legal entity, such as a corporation or a limited liability company, you can certainly do it yourself. There are many websites created for do-it-yourself incorporation. You will pay for boiler-plate corporate formation documents, and you can simply fill in the blanks and file the papers with the Secretary of State. That being said, if significant sums of money are involved (and “significant” is up to you to define), or if the instructions seem daunting, please skip the do-it-yourself step. A lawyer will make sure you are creating a viable, legal entity, in the form best suited for your new business. I always recommend that you see an attorney when starting out in business. Many will give you a free, although limited, initial consultation.
Once you've established the nature of your business, making it legitimate by compliance with all of the proper entities, obtained the appropriate licenses, opened your bank accounts, and are ready to market your product or services to others, you're probably going to need a contract between you and your clients or customers. Can you write that contract yourself? Absolutely! In order to make it a binding agreement, it needs to contain these five things:
- The legal names of all parties entering into the agreement;
- An effective starting date (usually the date you sign);
- An ending date (which can be extended by mutual written agreement);
- The specific points to which you are agreeing, including what happens if a dispute arises; and
- Original signatures of each party.
Does it need to be witnessed or notarized by a non-party? Not a bad idea, but it's not necessary. You should sign as many original agreements as there are parties to it, so that each of you retains a fully executed original document.
Regardless of your best intentions, it's always a good business practice to get things in writing. And after everyone signs, be sure to shake hands.
*The information provided is for entertainment purposes only and is not intended as legal advice. You should consult your attorney.
To learn more about Nancy Gabriel and Mediation Around the Table, please CLICK
To learn more about the Infinity Business Magazine, please CLICK HERE