According to Dallas Business Lawyer Mike Young, there are some common errors entrepreneurs make when entering into business contracts. Here are five mistakes that you can prevent from happening by taking a few minutes to review a draft agreement before finalizing the deal.
Mistake 1 – Parties Misidentified In Business Contracts.
Because company owners and management are busy with other tasks, it’s common to enter into an agreement that actually identifies the wrong parties. For example, an entrepreneur may be identified in a contract as one of the parties but the company’s name is nowhere to be found. When the entrepreneur signs the agreement as an individual, personal liability attaches rather than having the deal be an obligation of the entrepreneur’s corporation or limited liability company as it should have been.
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Mistake 2 – Wrong Person Signs The Agreements.
Particularly with supply contracts, it’s common for business owners to tell low-level employees, temps, and even freelancers working in-house to sign off on agreements. This is dangerous for the company as obligations can be assumed that are not in the company’s best interest because of unfavorable terms that management would have rejected had time been taken to actually review the agreement before execution. From an enforcement perspective, it can be tough to insist a party fulfill the terms of an agreement when the signature is from someone who is not a principal or manager of the company evading performance.
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Mistake 3 – Key Terms Are Too Vague To Enforce.
Vague terms can make a contract unenforceable. A good rule of thumb for reviewing a draft agreement for specificity is to answer the following questions.
If you’re having trouble answering these questions about the scope of a proposed business deal, chances are there’s at least one issue that needs to be clarified before the agreement can be inked.
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Mistake 4 – Agreement Is Silent On How Changes Are Made.
When there is ongoing performance by one or more parties to an agreement, modifications to the contract will likely need to be made as circumstances change. Your business contracts should provide a formal mechanism for amending the agreements as-needed rather than relying upon an informal system that can lead to misunderstandings and lawsuits.
Mistake 5 – Trusting the Wrong Person.
Although there are many honest people with whom you can enter deals, Dallas Business Lawyer Mike Young says that your agreements are only as reliable as the parties to them. “If someone is lying to you during negotiations, that’s a good sign you’ll have problems getting the performance you want from them if the deal goes through even if the terms are great,” he said. “No matter how comprehensive your business contracts are, if the other party is dishonest with you, it’s probably a mistake to do business with them.”