Top 5 Items That Every Small-Business Agreement Should Have

Far too often relationships in business start out well but quickly spiral into misunderstandings and violations of what was agreed upon. Contracts are imperative to building and maintaining the professionalism and legality of a business. These include the contracts with your employees, independent contractors, podcast guests, brand partners, and more. The following are five terms that every contract should contain at a minimum. Speak to a business law attorney to learn more about how your business can use contacts.

No. 1: Written Agreement

Verbal agreements and 'hand-shake' deals are one of the best ways to ensure that your business relationship becomes strained and obligations go unfulfilled. Parties may forget the terms of the agreement, claim to misunderstand what was agreed upon, or just stop responding when it is their turn to uphold their part of the bargain. Taking the time to have a contract properly drafted and notarized goes a long way to protect your business interests. Although it may seem uncomfortable to request a contract at first, presenting a contract in your business dealings is imperative.

Case Study: John Doe's Construction Company agreed to build a shed for Jane Doe's Plant Nursery. In exchange, Jane Doe verbally agreed that she would provide and have planted two oak trees to make the front of John Doe's office more inviting and aesthetically pleasing. Essentially, the two engaged in a 'hand-shake' deal. John Doe successfully built the shed, upholding his end of the bargain. Months later when John Doe was ready for the oak trees to be planted in front of his office, Jane Doe stopped answering his calls, did not respond to his emails, and had her secretary to tell John Doe that she was "in a meeting" anytime John Doe came to see her. Since John Doe did not get his agreement in writing, he lost out on being paid for the work of building the shed (he was under the impression he would receive the oak trees in exchange) and lost out on a potential future customer now that Jane Doe is avoiding him. Even worse, all of the time and effort that John Doe has spent trying to enforce this verbal agreement has taken away from him working and has cost him an immeasurable amount of anxiety and stress.

No. 2: Obligations of Each Party Clearly Stated

Your contract should state in extreme detail the rights of each party and what each party is obligated to do. The more detailed the agreement is, the less room for "interpretation" there is for a party to argue that the contract really meant something different. If either party fails to uphold their obligations under the agreement, then their action or inaction would most likely be considered a 'Breach of Contract'. A 'Breach of Contract' is a legal claim where the violating party would have to pay the non-breaching party money to compensate them for any losses that occurred due to the breach. It is very important that the obligations of each party are accurate, clear, and are within the ability of the parties to meet. In the event that the parties are unable to uphold their obligations, the consequences can be costly and time consuming.

"A contract is an ask game, and if it asks for an hour, and I submit to an hour, then it's an hour. When I look at a contract, I look at the obligation - where, when, how long, the compensation. If I agree to it, that's the way it is. I have an obligation. They have an obligation." – Chuck Berry

No. 3: Stipulate Contract Termination

The contract should include terms for terminating the contract if circumstances arise where you no longer wish to be contractually obligated to the other party. It is important to have legal recourse to get out of your contractual obligations instead of simply breaching your contract. Contract termination terms could include termination based on a certain time period, upon written notice, or if the other party breaches the contract.

No. 4: Consideration

In order for a contract to be valid, it must include consideration. Consideration is defined as the benefit that each party receives for entering into the contract, ie. you receive a car in exchange for payment to the dealership. Consideration is usually when there is:

a promise to do something when there is no legal obligation to do so; or,
a promise not to do something when you have the legal right to do it.

A contract can even be considered unenforceable if it lacks the proper consideration (ie. gift).

No. 5: Confidentiality Clauses

Also called 'Non-Disclosure Agreements', these terms prevent one or both parties from divulging of sensitive information such as trade secrets or personally identifiable information (PII). Parties seek to add confidential clauses in a contract to protect a company from having their trade secrets and personal information disclosed. This information can take the form of written documents or verbal information. So long as the overall contract meets the requirements of a valid agreement, the confidentiality clause can be enforced. It is common to find confidentiality clauses in Employment Agreements, Letters of Representation, Purchase Agreements, and Client Service Agreements.

Make Sure that Your Contract is 'Air-Tight'

Understand what your contract's obligations are. Have an Attorney draft the terms of your agreement for you, schedule your initial consultation today!

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