written on September 24, 2010 by Scott Lawson
In an effort to avoid legal costs, it is not uncommon for business owners to enter into a business transaction, or long-term business agreement, without consulting an attorney. Unfortunately, many of those same business owners later experience unpleasant legal surprises. They may find, for example, that they do not own or control key intellectual property, that they have less rights and control than they thought they had over a business relationship such as with a key supplier or distributor, or that they have assumed massive, and potentially business-threatening, contractual risks.
Why does this happen? Maybe the business owner assumed that nothing bad would ever happen or that he or she was smart enough to go it alone. Maybe the owner thought that a form agreement that he or she pulled off the Internet, or a contract form used for another deal, would be okay to use for a future one. Or maybe the owner thought it was perfectly fine to sign whatever the other side’s lawyer prepared. Let’s examine each of these assumptions one at a time:
Nothing Bad Will Ever Happen:
At the beginning of any business relationship, optimism runs high. But even the best business relationships face challenges over time and all come to an end at some point. Part of the function of any well-drafted, written contract is to plan for changes or unexpected issues as they arise or for the wind-down or end of the relationship when necessary. Going forward on a hand-shake is wonderful, but as the business relationship moves forward, that hand-shake often leaves too many unanswered questions.
I’m Smart Enough to Go it Alone:
Sure you’re smart. But it’s not about intelligence; it’s about having access to someone with the right skills and experience to ensure that your business agreement won’t cause you big problems over time. Seasoned business attorneys know from years of training and experience where the pitfalls in any business deal are and can help you to avoid them. A reasonable amount of legal prevention upfront can avoid massive legal intervention at some point down the road.
I’ll Use a Contract from the Internet or another Deal:
Every contract you can find in your files or on the Internet was drafted with particular goals in mind. If the contract was not prepared for you and your deal specifically, you can never really be certain what those goals were. You can bet, however, that they are not the goals you have in mind for your new business agreement. Unless you’re using a form contract that was carefully prepared by your lawyer for transactions exactly like the one you’re about to enter into, using a contract for another type of transaction, or one that was prepared for someone else, is very likely to lead to unintended problems over time.
I’ll Just Sign Whatever the Other Company’s Lawyer Prepares:
Sure, it’s smart to let the other guy pay the lawyer. But you can bet that the other guy is going to get something for his money; namely, a contract that is tilted in his favor. Remember, the other guy’s lawyer doesn’t represent you and he is bound by law to protect his client’s interests – at the expense of yours. Of all of the options to try to avoid legal costs, this is by far the worst. Here’s a real-life example: A start-up antiques broker spends millions of dollars on a contract with a website developer to create a one-of-a-kind website for the valuation and auction of high-priced antiques. The site is intended to attract high-volume dealers as opposed to the kind of small collector that currently uses the company’s services. The valuation feature and functionality in particular are “state of the art” and were developed using data and strategies painstakingly collected and developed by the company. When funds for the development project start to dwindle, the project is put on hold indefinitely.
Three months later, the company receives word that a similar website has just been launched by a competitor. The competitor’s website quickly grabs headlines and begins to attract the same high-volume antique dealers the company was hoping to attract with its website. And who was the master-mind behind the new site? You guessed it - the same website developer the company was using to build its own website.
Easy lawsuit right? Wrong – the company signed the developer’s standard form contract under which the company transferred to the developer complete rights to use all designs, functionality, content, etc. in future development projects. Further, the company agreed not to sue the developer for anything other than a complete failure to do any work at all.
Avoid being a cautionary tale. Develop a relationship with an experienced business lawyer who can help you to avoid unintended legal outcomes in your business dealings. Look for firms that offer fixed fee arrangements to manage costs. Whatever you do, don’t sign anything until a lawyer looks it over for you. That ounce of prevention will avoid the pound of cure that many business owners end up paying.
Scott Lawson, Esq.
The Lawson Firm, LLC
www.lawsonfirm.net