Thoughts from an Entrepreneur: 4 Laws of Contract Writing

4 Laws of Contract Writing

Written by: Tim Allen, Indigo Media Processing

As an entrepreneur for many years, I have had the opportunity to write and revise many contracts for my business dealings. I'm not a lawyer but I have strong opinions about contracts that every entrepreneur would be wise to take to heart.

  1. Contracts are between business people, not lawyers. When writing a contract you should start with some "boiler plate" terms and conditions (T's & C's) of what you would like, but through the negotiation you should feel free to negotiate away some of your T's & C's if doing so gets you where you want to go. Bad lawyers try to negotiate for you. Good lawyers memorialize the T's & C's between business people and warn of potential pitfalls.
  2. Binding Arbitration: Binding arbitration is like a faster, cheaper version of going to court to settle grievances. Small businesses that don't have unlimited time and money should build a binding arbitration clause in every contract and walk away from any business that wants to negotiate it out.
  3. Venue: Just staying out of court isn't enough. A big company can muscle around a small company by dragging them into binding arbitration in another state, especially if your client does business far away. Imagine being dragged into arbitration in New York when your small business is in Chicago. That would be a financial nightmare. Insist on the venue for binding arbitration being your home town. If your client thinks he has been wronged enough to take it to arbitration, they can spend the money to come to your home field. Never negotiate away the home court advantage.
  4. Loser Pays: Loser pays the court costs provisions has the benefit of making everyone play nicely, including you. It sets the right tone for a contract.

What entrepreneurs forget is that the value of their company is dependent on the quality, length and terms and conditions of their stack of contracts. Those old school businesses who believe that a "handshake" is enough will find out eventually that even if the business relationship remains strong, the value is discounted when they want to sell their business.