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What are the types of contract mistakes?

By Pantea I. Fozouni

May 30, 2022

Contract mistakes

What are the types of contract mistakes?

Many small business owners are not legal experts. However, when it comes to their legal agreements, many act as though they are seasoned attorneys by believing they can simply wing it and write their own contracts or utilize inexpensive fill-in-the-blank legal documents that they obtain for a low price online.

Although this may seem appealing, it is playing with fire. In fact, you might end up spending tens of thousands of dollars in attorney's fees and court expenses - or even going out of business - just because of one poorly written legal agreement.

What are the most common types of mistakes with respect to a contract?

When you go DIY, there's a lot of risk in your contracts. Unless you have a legal education, you run the danger of making a lot of errors when you handle things yourself.

So, What are the types of contract mistakes?

Here are a few of the most frequent contract mistakes that you may make if you try to manage things on your own, in order to demonstrate how complex legal agreements can be and how unready you are to create your own contracts.

Contract Mistakes #1. Deal conditions that are illogical:

We're all too familiar with... a company owner comes to us following the breakdown of a partnership, joint venture arrangement, or customer relationship, and when we try to figure out what the deal was really about, the terms didn't make sense in the first place.

One of the most effective ways to employ a lawyer is to have him or her assess each transaction for terms that make sense, and then verify that the deal's conditions are clearly recorded so that anybody could comprehend them.

 #2. Failure to define a clear strategic performance objective: 

It's straightforward to enforce a contract with a vendor that doesn't fulfill or a contractor who fails to meet the deadline in such circumstances since the facts are obvious. Things, on the other hand, may get considerably more complicated when it comes to parts of an agreement that are more subjective, such as poor performance.

In your contracts, you must be extremely clear about the other party's aims, objectives, and results to ensure that they fulfill their obligations as stated in the agreement. If this isn't done, you may find yourself with a low-quality product or a poor performer on your hands who is unable to improve.

If you're hiring a new person, for example, you should set clear objectives and goals for the position with timelines for achieving them.

Finally, include this information in the employment agreement so that it's crystal clear for both you and the team member what your responsibilities will be.

#3. Not defining what constitutes a violation:

It's also critical to think about what might go wrong in a business collaboration before beginning work. Then you must establish a clear procedure for dealing with each problem in the agreement.

Consider how you would handle a team member if things didn't work out as planned, for example, in the situation illustrated above. What would happen if the team member required leave, was unable to do so, or wasn't able to perform for some reason?

What are each of you entitled to if the relationship ends? All of these possibilities must be factored into the contract.

 #4. Not giving yourself the option for an Out: 

In addition to ending a contract due to a violation, you should think about how the partnership will conclude owing to less contentious circumstances. The transition may be seamless if you have a clear exit plan rather than being caught off-guard or taken by surprise when things change.

When working with a new business partner, make sure you consider and plan for all of the ways each of you may leave the venture. What would happen if you decided to sell the business?

What would happen if the business went bankrupt and you were forced to shut your doors? What will happen if one (or both) of you dies or becomes disabled? You must clarify all of these possibilities, then document them in your operating agreement or corporate bylaws and/or a buy-sell agreement. This is one of the biggest contract mistakes made by many business owners.

 #5. Failure to resolve conflict:

Your contracts should also address how to handle any disputes that may arise, ideally without going to court, which should always be a last resort.

Consider adding phrases to your contracts requiring the use of alternative dispute resolution techniques such as mediation and arbitration before one party can proceed with a lawsuit.

You may have better control of potential disputes before they happen by including a clause requiring mandatory mediation or arbitration in your contracts. You can also help avoid situations where conflicts are handled in the most productive way possible, without being bogged down in court.

#6. Not safeguarding your intellectual property

 It is essential to protect your intellectual property in your business contracts, as it is one of the most valuable assets in your company. When dealing with independent contractors, this is especially crucial.

Contractors, unlike employees, whom you usually own automatic copyrights to everything they create while working for you, typically maintain complete copyright rights over their work unless they've signed a formal contract stating the opposite.

To this end, you may not even own the work you pay someone to create for you if you don't have a properly drawn contract in place.

To ensure that you retain legal ownership of your intellectual property, include work-for-hire and copyright assignment clauses in every contractor's agreement. And, yes, this includes everyone, including those you've worked with for years without a single issue.

Treat your contracts with the care they deserve. Contract Mistakes can cause long term issues

You shouldn't pretend to be an attorney and wager your company's legal agreements, as you wouldn't try to wire your office's electrical systems if you weren't a professional electrician.
When it comes to putting such a crucial component of your business into action, you should always engage the services of a qualified and experienced business lawyer. These contract mistakes can be costly.

Meet with us, your Family Business LawyerTM, whether you need new agreements drawn or just want us to go over the ones you currently have—even if they were prepared by another lawyer.

We will assist you in creating not just clear, succinct contracts, but also an agreement procedure that allows you to more successfully manage the many changes that occur in every relationship while still dealing with conflict in a healthy and productive way.

Please contact us immediately to begin.

This article is a service of a Family Business Lawyer™.

We specialize in all types of legal services for companies and can assist you with making the greatest judgments regarding how to manage your company throughout your life, as well as in the event of your death. We also provide a LIFT Start-Up SessionTM or a LIFT Audit for an ongoing business, which includes a comprehensive examination of all legal, financial and tax systems you need for your business. Schedule online today.

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