Five Most Common Contract Problems

As the owner of a new small business, we will assume you’re not an expert yet. That’s okay! Even so, if you’re not an expert but you know you need contracts, congratulations. You’re doing great already. A contract is an essential piece of documentation that helps protect your business. Not all contracts are created equal, though. Just like you wouldn’t drive a car missing a front wheel, you wouldn’t use a bad contract.

Poorly written, vague, and weak contracts can cause many issues. At Thompson Law, we’re here to navigate you through your small business concerns. We want you to succeed. That’s why we’ve prepared this list of some of the most common problems small business owners run into. These can cause serious trouble, so be sure you avoid them.

1) Poorly Defined Rights and Responsibilities

Contracts need to be clear. They should not have any ambiguity as to their terms or conditions. For one reason or another, people often struggle with the rights and responsibilities laid out in a contract. Everyone involved should be aware of what they’re entitled to and what they’re expected to do. Don’t make assumptions. You can never know you’ll be able to reach an agreement about what work should be done. Put it all down in writing, not handshakes.

2) Using Pre-Made Internet Contracts

Technology has opened the door to endless convenience for us. Unfortunately, it has also created some pitfalls in the search for convenience. For example, there is no way for somebody providing a contract service to know the particulars of your business.

Some contracts are unenforceable from location to location. A Washington contract might not have what a Florida contract needs. Different state laws can apply, and you might pick the wrong contract… Don’t DIY something as important as a business contract!

3) Forgetting Termination or Default Clauses

Even contracts formed with the best of intentions can go bad. It would be best if you prepared for the worst. What if there’s a dispute, and your contract gives you no recourse? That’s a bad situation. Contracts need dispute resolution clauses, as this gives you and your contractor an option other than a lawsuit. Default clauses are also important just in case the whole thing goes up in flames – If the worst should happen and the business becomes inoperable. If something happens, both sides need to be cared for and considered.

4) Inadequate Recital

What is a recital in a legal sense? The recital for a contract is the introductory text or preamble. It covers who enters the contract, why, and what the contract entails. This is essential as it can prevent interpretation during disputes. A poorly defined contract can allow arbitrators to help them interpret the contract’s intent. Be clear, establish intent, and cover your bases.

5) No Due Diligence in Contract Problems

If you’re entering into any relationship, you need to know who you’re getting involved with. This is especially true with business. Check out your new partner’s records and operational history. See who they’ve worked for and how it went. Yes, it’s homework, but it’s important homework to protect yourself from problems down the line. You need to know you’re getting involved with somebody who can handle the job.

These are only a few of the most common mistakes business owners make with their contracts. To avoid these and other mistakes, you need to work with an attorney. Visit the Thompson Law homepage and contact us today. We’d be happy to help answer any questions you might have about your contracts.