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What Types of Contracts Does Your Business Need?

February 27, 2023

Contracts are a part of everything your business does. They are integral to the goods, services, people, and places you need to operate your company, as well as the products and services you provide to others. However, small businesses often fail to invest in well-drafted and negotiated agreements that can protect their company from legal risks and provide favorable terms that can save money or improve revenue. Instead, they rely on generic legal forms or oral types of contracts. If you are a small business owner, hiring one of our business attorneys can help ensure that you have the types of contracts your business needs to operate successfully.

Does Your Business Have These Contracts?

Certain contracts should always be in writing and drafted or reviewed by a lawyer to mitigate risks to the company. These types of contracts include the following:

  • Employment. All employees should have written, signed job descriptions and employee handbooks which detail the scope of their responsibilities, their job requirements, as well as their compensation and other relevant job characteristics. In addition, you may also want them to sign a non-disclosure agreement if they will have access to confidential information. Independent contractors should also have signed, written agreements outlining the relationship between the business and the contractor, ensuring that the independent contractor is properly classified as a contractor and not an employee to avoid tax penalties and fines. 
  • Services. If your business provides a service, then perhaps your clients should sign service contracts detailing what services you will provide, how and when the services will be provided, payment terms, remedies in the case of a breach of the contract, and any specific issues pertinent to your industry. The same is true if you buy services from another company.
  • Leases. If you rent space or vehicles, your leases should be reviewed to ensure that the terms are fair and equitable and you understand your rights as a lessee or lessor. Leases are typically multi-year contracts, so the effects of a bad lease can last for a long time. Additionally, leases sometimes require guarantees that impose additional obligations on the business or individual business owners in the event of a default. These should be carefully considered and drafted to protect the guarantor’s interests. 
  • Supplies/Provisions. Anything that you purchase for your business, including office equipment, raw materials or inputs, or other products, will be governed by a contract. An attorney can help you understand the rights and responsibilities of both contracting parties and monitor compliance with the terms of the agreement. 

How Can You Avoid or Reduce Legal Problems With Your Contracts?

If either party to a contract violates the terms of the agreement, it can result in a breach of contract action. For example, a vendor who fails to perform their obligations may be in breach of their contract. However, if you terminate the contract without proper cause or fail to follow the procedures to cure the breach that are required to be followed, you may be in breach of the contract as well. Litigation is expensive and time-consuming so it is always best to be proactive and minimize the opportunities for conflict before they happen. The ideal way to do this is to conduct a legal risk assessment and implement well-drafted contracts.

A legal risk assessment is a process wherein an attorney conducts a thorough review of your operations and documents, including your existing contracts to identify areas of concern and make recommendations as to how to address them. Where written contracts don’t exist, they can be drafted to protect the business. Existing agreements can also be revised and standardized, so business relationships are governed by consistent terms. Importantly, legal risk assessments should be done periodically because laws and your business may change and can affect your agreements.

What Happens If a Party Breaches a Contract?

If a breach occurs, it is best to consult an attorney as soon as possible. Even if you want to handle it out of court, an attorney can advise you regarding how to preserve your rights in case the matter does end up in litigation, arbitration, or mediation.  

An experienced lawyer can help enforce your contracts so your company receives the services you contracted for, or can defend you against claims by other parties threatening your business. 

If you are interested in a legal risk assessment, contact our firm. We can provide you with an assessment as part of our Fractional General Counsel services as well as on a standalone basis to help your business succeed.

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