Put It In Writing: The Importance of Written Business Agreements

  • By Susan Burns
  • 22 Jun, 2016

Are you finalizing your business agreements with a written contract?

With agreements being the cornerstone of most business arrangements, I am surprised by the number of business owners who continue to ignore the importance of putting it in writing--that’s right, a written contract. No matter how well-intentioned both parties are, operating on a handshake is far too risky for your business.

Let’s Review

Business agreements can be as simple as an offer, acceptance, and a handshake. You may have complete trust in the party you are doing business with, to the extent that a "handshake deal" seems sufficient, and secure. After all, business relationships thrive on foundations of trust and mutual understanding.

But what is at stake? The purpose of a contract is to outline terms and conditions that are mutually agreed upon by both parties. When you reduce those terms and conditions to writing, you will be surprised at how many additional factors there are to consider. Not putting your agreement in writing, however, prevents you from having that full discussion with the person on the other side of the deal, and sets you up for possible misunderstandings down the line. Good intentions and trust are important to business relationships, but they are not a substitute for a written agreement.

Also, consider the fact that memories fade over time. What happens if you go along the primrose path and no misunderstanding arises until a year or two later? We all know how two people can view the same exact event differently.

Last, but not least, what if your trusted party eventually does violate the terms of your agreement and you have no written agreement? This is a breeding ground for extensive negotiation and expensive litigation. Failure to put your agreement in writing is a disservice to you and your business, and undermines your chances of success.

Far from diminishing your relationships with clients, contractors, suppliers, partners, shareholders and other parties, a well-written contract enhances your relationship by providing clarity. It prevents disputes, and possibly litigation expenses down the line. Also, if you do end up litigating, a well-drafted agreement supports your success in the courtroom.

"Get it in writing"

Chances are, you've heard this phrase before when entering into a business agreement. Whatever the circumstances of a business relationship, and however much you may trust the party involved, a written contract is a far better safeguard to your business' interests than a handshake.

People change, times change, and memories fade--and this reality is unfavorable to businesses who have established verbal agreements. Parties can forget the details of what they have agreed to, and perhaps even lie about the terms of a “handshake deal.”

A verbal agreement without a written agreement to back it opens up the possibility for such manipulation of terms. When a business is doing particularly well, a party might wish to reap unearned benefits; alternatively, when a business is doing poorly, a party might try to avoid the costs of a business' setbacks.

“Handshake deals” are especially hazardous when personal relationships become intertwined with business ones. Take, for example, the lawsuit between the co-founders of Snapchat, a popular social media app in which users can send temporary picture messages.

Reggie Brown shared his idea for the app with Evan Spiegel while the two men attended Stanford University. A third student, Bobby Murphy, joined the team to carry out the computer programming, and an oral agreement was made between the three. Spiegel, Snapchat's current CEO, and Murphy, CTO, ousted Brown from his role in the company, which subsequently received $1 billion and takeover offers from Facebook. Brown sued his former partners in 2013 for breach of contract, which resulted in an undisclosed settlement in 2014.

Opting for a written contract won't eliminate the possibility of disputes and misunderstandings arising. However, having a written contract to refer to in which terms and conditions are well-defined and unambiguous, greatly reduces your chances of a dispute escalating to a court setting and increases your chance of success if it does.

Benefits of a Written Contract

Contracts outline the terms and conditions of a business transaction, and include details of payment, product sales, service delivery, and termination rights. Some contracts   must   be in writing to be enforceable, for example, real-estate contracts and any contract taking longer than a year to complete.

A well-drafted contract can be referenced at any point to clear up misunderstandings about the agreement--misunderstandings which, in the absence of a written contract, could develop to full-fledged court disputes between the parties.

While oral contracts can still be legally enforceable, it is very difficult to do so without a clear record of the offer, consideration, and acceptance. So as to avoid the "he said, she said" court dispute, and "your word against theirs" arguments, it is always best to formalize business agreements in writing.

Not only are written agreements more easily enforced, but each party better understands its obligations to the other. The contract drafting process, in which parties review and make changes encourages consideration of any number of scenarios, before the contract is finalized. This foresight can make all the difference for the business owner invests in minimizing risk through written contracts.

Consult a Legal Professional

Every contract is unique, and must be tailored to your unique business circumstances. It is here that a legal professional's assistance can prove useful for your business.

An experienced attorney can provide information about the benefits that are, or should be, available to you. They can break down difficult contractual language, and can help you determine what terms you should agree to. Most importantly, an attorney will ensure that the contract itself is valid and defensible.

Verbal agreements, or "handshake deals" can pose a great risk to your business. Without a written record of the agreement, you risk problematic interpretations of the terms and conditions. And, if litigation becomes necessary, you also risk great legal fees. On the other hand, all of this can be avoided with a decision to formalize your business agreements in writing.

A well-drafted contract is a work of art. [tweet this]. With regard to the future of your business, a legal professional's guidance while drafting a contract is an investment worth making. 

Don't leave your small business vulnerable--protect your interests, resources, and rights with a written contract.


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More Posts from Susan's Blog

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By Susan Burns 26 Oct, 2017
P.S. There has been a lot of discussion on social media about my post on reading fine print  when installing apps, specifically focused on the Grammarly app. Some people have responded with the interpretation that Grammarly can only use your content to correct your grammar and not for anything else.

I disagree. This is not a correct interpretation, in my opinion.

Even though that interpretation may be based on a provision in the TOS that states you keep ownership of
your content, they still have an unlimited, perpetual, royalty-free right to use it. I won’t repeat the prior
post, but do urge you to read it .

Others have suggested that Grammarly’s TOS are typical of SaaS (software as a service) agreements and,
somehow, that makes it okay. The TOS may be similar, but the products aren’t. Grammarly, in my
experience, crawls through everything you type. Everything.

The other argument proposed by someone is that because this is typical SaaS language, they don’t really
mean that they are going to use your content. Really? Then say so in a clearly-drafted, user-friendly
contract a/k/a TOS.

I have not heard of someone successfully arguing in court that even though they agreed to a license of
their product, they didn’t think the person was really going to use it … and therefore, they shouldn’t be
allowed to use it. If you know of such a case, send it my way.

Again, legal ethics prohibit me from using the service. That aside, I don’t choose to give Grammarly
access to everything I type.

As one person put it, “everything ever typed on the computer, so while it runs in the background, it
gathers password, credit card data, shopping habits, text conversations from Facebook, messenger
services, anything you do... recorded and stored.”

Finally, my posts are my opinion and my legal analysis. I am not your lawyer. And, I am not telling you
what to do.

One of my major focus points with clients is clarity. Fabulous decisions come from clarity. Make a
decision that’s right for you.

I love a great discussion! Keep the comments coming.

MSB
By Susan Burns 24 Oct, 2017

Recently I was engaged in a Facebook exchange among a group of successful business women. Someone asked for opinions on using Grammarly—an app that is marketed as “A FREE, ACCURATE GRAMMAR CHECKER BUILT FOR EVERYONE.”  

The comments started rolling in: “love it!” “best thing I have used in a long time.” “Cuts my writing time significantly.” And more like that.

I actually had installed the free app a few weeks before to give it a test run. I found it to be a nuisance because that little app was popping up and sticking its grammar-nose in every single thing I wrote. My emails. My blog posts. My word documents. That spelled danger to me, and I immediately deleted it.

My curiosity piqued, I checked the Terms of Service (which, admittedly, I should have done first). Here is what I found:

By uploading or entering any User Content, you give Grammarly (and those it works with) a nonexclusive, worldwide, royalty-free and fully-paid, transferable and sublicensable, perpetual, and irrevocable license to copy, store and use your User Content (and, if you are an Authorized User, your Enterprise Subscriber’s User Content) in connection with the provision of the Software and the Services and to improve the algorithms underlying the Software and the Services. (emphasis added)

Here's what you need to know:

  • Grammarly, Inc. is a Delaware corporation. They include in the definition of “Grammarly” not only the corporation, but also all of its subsidiaries AND other affiliates.
  • The definition of “Software” is “the software.
  • The definition of “Services” is … wait for it … “services.” 
  • And, although it is poorly drafted, it seems to be attempting to include any future Software and Services provided by Grammarly, which you recall also means any subsidiary or affiliate.

What does this mean for you?

It means that if you install Grammarly, whether it’s a free service or a paid service, you are specifically giving an unlimited perpetual license to your content to Grammarly and any company they affiliate with and any of their subsidiaries basically for any service they provide now and decide to use in the future.

That means that if you use Grammarly, instead of your own brain or a copy editor, you are no longer the exclusive owner of your content. That means they can republish, provide to third party affiliates, and use your data and materials any way they see fit.

The bottom line is that Grammarly has access to—and the unlimited, forever—right to use your content. Period.

And, once you install Grammarly, it is everywhere . It pops up in every document you create. Every. Single. One. If you don’t believe me, try it yourself.

Of course, lawyers and other professionals with a confidentiality responsibility to their clients are ethically prohibited from using Grammarly. (And, I hope they read the fine print.) But even if you don’t have an ethical responsibility to keep information confidential, do you really want to give up the right to your content?

Think about it! And next time, read the fine print. … or call me, and I’ll read it for you.


‚Äč*This post has been updated here .

By Susan Burns 28 Feb, 2017

The driverless car industry is hot and super-competitive. That’s a given. Here’s what’s not hot if you are Waymo, the self-driving car business that was spun out of Google’s parent company:

By Susan Burns 19 Feb, 2017

Recently, there was a trademark spat between Adidas and Tesla. The story piqued my interest because   the big players make mistakes that are instructive for small businesses (only on a grander scale)—and because it illustrates the importance of brand identity and underscores why it’s smart to register your mark.

In a nutshell, here’s what happened: Tesla filed with the US Patent and Trademark Office (USPTO) to register its Model 3, three-bar logo as a trademark. If the registration had been for the purpose of using the mark on a car, there would not have been a problem. BUT, Tesla registered to use its three-bar “E” on clothing. Adidas, a company known for rigorous policing of its brand identity, challenged Tesla’s right to register the mark as confusingly similar to the Adidas three-bar logo. Tesla withdrew its application. Adidas protected its three-bar brand identity.
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