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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The American Bar Association Section of International sponsored this event with the intention of presenting US, Mexican, and Canadian standpoints on the TPP and the impact of its passage on NAFTA. What followed was a thoughtful and informative discussion, and although the topic is highly complex, I thought I'd share some highlights with you.

 

Ms. Sierra explained some of the political context surrounding the TPP, including that the US has historically been pro-trade, and this is the first time since 1992 that trade has been a significant issue in presidential election year politics. US FTAs are modeled after NAFTA. The agreement eliminates a significant number of tariffs that would be beneficial to US businesses, but there are dissenting voices. Some of the concerns include employment issues, the manipulation of currencies by various countries, and opposition in specific industries such as auto, segments of agriculture and pharmaceuticals and biologics whose concerns were not addressed in the agreement. For example, intellectual property protection for biologics is not included in the agreement.

 

Mr. Lopez pointed out the benefits of NAFTA--growth in trade between Mexico and the US, especially--and explained that the TPP is intended to expand upon this growth, with attention to subjects that were treated less comprehensively in NAFTA. Another goal of TPP, in Mr. Lopez' view, is to strengthen Mexico's ties to NAFTA and other FTA partners, allowing Mexican goods to reach new markets.

 

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The TPP has been negotiated between 12 countries who together form about 40% of GDP, and 1/3 of world trade. The agreement is of an unprecedented scope, and the implications of this agreement are huge. We will soon know if it can pass during the lame-duck session before the election, which is fast approaching!

 

To learn more about the TPP, visit this site . The full text of the agreement can be found here .

 

Sources:

Granville, Kevin. “The Trans-Pacific Partnership, Explained.” The New York Times. 20 August 2016. Web.

 “The Trans-Pacific Partnership.” Office of the United States Trade Representative. Executive Office of the President. 2016. Web.
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