Drafting & Negotiating Contracts: 5 Tips for Small Business Owners
As intellectual property and business attorneys, we help our clients draft, review, negotiate, and litigate all kinds of contracts—from independent contractor agreements to trademark licensing agreements to commercial leases. And, as experienced litigators, we're able to spot the hazards and pitfalls that commonly turn seemingly innocuous business deals into full-on legal battles. More often than not, the best strategy is to avoid potential legal disputes altogether. That's why we always encourage our clients to have solid, well-written contracts in place from the get-go. To help you get on the right track, we've compiled the below list of 5 tips for small business owners who are thinking about drafting or negotiating their own contracts.
1. Get it in Writing.
Clearly-written contracts are key to fostering a mutual understanding between the parties, which can help you avoid conflicts down the line. Although oral agreements can be legally binding in many situations, it's best practice to write down exactly what the parties agreed upon. That's because without a written contract, it can be extremely difficult to prove which terms were in the contract, whether a party has breached the contract, and whether you have any legal remedies under the contract. Be sure to use clear, unambiguous language and to define all key terms when drafting your contract. Some of these key terms may include:
Who the parties are;
The obligations of each party;
The payment price and due date;
What exactly the payment buys;
Who owns any intellectual property at issue;
When the contract expires;
How to terminate the contract;
The laws of which state applies to the contract; and
How contract disputes will be resolved.
2. Don't Be Afraid to Ask Questions.
Again, clarity is key when it comes to well-written contracts. Never make assumptions about what the other party means or understands—if you aren't sure about something, ask! Even if it's a simple question and you can probably figure out the answer on your own, it's always better to be sure that all parties have the same understanding. Without a "meeting of the minds," you may not even have a valid contract. That is, a mistake or misrepresentation can cause a contract to be unenforceable, even if only one party is mistaken about the contract or if the misrepresentation was unintentional.
3. Negotiate, Negotiate, Negotiate!
Many small business owners are surprised to learn that contracts are negotiable. Even if you're an independent contractor and a large company presents you with an long, official-looking contract full of legalese, this is only an offer unless you agree to it. Be sure to read each proposed term carefully, ask clarifying questions, and push back on any terms that don't seem favorable to you. By proposing new or different terms (instead of agreeing to the offer), you'll have presented a counteroffer. The other side then has the opportunity to accept or reject the terms of your counteroffer. Be sure to keep good track of your negotiations, so that all negotiated terms can make their way into your final written contract.
4. Pay Attention to Boilerplate.
If your eyes glaze over when reading legalese, you're not alone. Many people don't read contracts in full before signing them—they may only read the first few paragraphs and skim over the rest, particularly if the last few paragraphs appear to be boilerplate language. Don't be one of those people. It's in your best interest to read every term of a contract before agreeing to it, even the "standard" clauses on integration, binding effect, dispute resolution, attorney's fees, and applicable law. These may not seem important to you now, but they can drastically affect your rights under the contract. If you're not sure what certain boilerplate means, ask.
5. Consult an Attorney.
When it comes to protecting your important business interests and your valuable intellectual property, it can be a good idea to consult an attorney licensed to practice law in your state before you enter into any contracts. An experienced attorney can help you pinpoint problem areas, explain boilerplate language to you, negotiate terms with the other party that are favorable to you, and perhaps most importantly—help you make sound legal decisions that will protect your business in the long run. Investing in good business contracts now can help keep your business running smoothly well into the future.
Res Nova Law is an intellectual property and business law firm based in beautiful Portland, Oregon, serving innovative companies and entrepreneurs across the Pacific Northwest. We’re your go-to lawyers for startups and well-established businesses of all sizes and in every stage of business growth. Our legal services include business formation, contract drafting, intellectual property advising and litigation, business advising and litigation, and more. We also offer outside counsel plans for businesses with ongoing legal needs.