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business contract mistakes

Are You Adjusting Your Business Contracts For Inflation?

By Business Contracts, Business Lawyer
business contracts and inflation

If inflation is eating away at your personal assets, it’s also taking a toll on your business. So, how do you handle that? Particularly when you rely upon ongoing business contracts with customers?

At the outset, never promise your customers lifetime flat fee pricing for any service. And if you do, include an explicit caveat that you reserve the right to adjust pricing to account for inflation.

In addition, you’ll want to build into your written contracts specific language that gives you the ability to raise pricing based on inflation. And tie it to a readily identifiable measure (e.g. the Consumer Price Index) so that both parties can quickly determine if a threshold has been met that justifies a price hike.

Now an old school method (common in the early 20th Century and before) was to price business leases and other ongoing contractual obligations in gold or silver rather than the U.S. Dollar itself. Payments were either made in the physical precious metal or in dollars based on the value of the precious metal at the time a payment was due.

Tying payments to precious metals hasn’t been popular recently for a variety of reasons, including trading manipulation of the pricing of gold and silver.

However, if inflation continues to be an issue and there’s an objective means to value physical precious metals (not the paper trades of nonexistent metals) that both parties will agree to, then this is an option. Or the parties agree at the outset that payments are to be made in physical gold or silver (or some other store of value) instead of the dollar. For example, an office space lease that provides for monthly rent to be two troy ounces of physical gold.

What about cryptocurrency as a means to protect against inflation? At the present (2022), cryptocurrency appears to be a volatile speculative bet rather than a store of value that could be used as an anti-inflationary tool to protect your business.

Some believe that central bank digital currency (e.g., a digital Euro) could serve as the solution. However, digital is even easier to “overprint” — and devalue in the process — than physical fiat currency.

So, for the time being, the easiest course of action would be to give yourself flexibility by simply acknowledging in your contracts that pricing can change based on inflation.

Tie that to some objective standard for measuring inflationary changes. And make it easy for both parties to know when and how pricing will change to account for monetary devaluation.

If you need help with your business contracts, it’s probably time to set up a phone consultation with Business Lawyer Mike Young.

Do You Write Your Own Business Contracts?

By Business Contracts, Business Lawyer

If you create your own business contracts, unless you’re experienced business lawyer, chances are you’re creating a bunch of legal risks for your company with each deal.

Because most people who don’t actively practice business don’t know how to identify all of the important issues that must be covered in a commercial agreement…and they don’t know how to write the contract’s terms and conditions in a way that’s legally binding either.

Equally important, there are some things you never put in a business contract. Not only can these items expose your company to civil liability…but they can even be a crime.

Would you perform heart surgery on yourself? Of course not.

Because the risks to your health are too great.

The same is true of being your own business lawyer. If you don’t have the knowledge and experience to do it right, the down side to getting things wrong is an unacceptable risk.

If you need help preparing or revising contracts for your company, it’s time to speak with an experienced business lawyer.

Are The Right People Signing Your Business Contracts?

By Business Contracts, Business Lawyer

A frequent mistake I see in business agreements is that the wrong people are signing them. The consequences of this issue can be expensive.

Here’s why…

If a contract signatory doesn’t have signing authority from the entity he represents, that company may not be legally bound to perform the agreement.

Even if there is signing authority, business contract signature lines are often screwed up so that it’s unclear in what capacity the person is signing.

For instance, if Sheila Jones signs her name on behalf of her company but neither her business nor her title is identified as part of the signature, one can make a strong argument that the signature was in a personal capacity (with personal liablity!) instead of as an authorized company representative.

Then there’s the missing signatory to a business contract. There are several common variations of this type of mistake. For instance, a person might sign in one capacity but fail to sign a second time in a different capacity. Because it’s common for a person to need to sign once as an individual (e.g., personal guarantee) and a second time as an authorized signatory (eg., President) of his company that’s a party to the agreement.

Then there’s the missing spouse consent problem. This frequently occurs in the sale of a business. For example, Mary Smith signs an agreement to sell her company. However, because her husband John may have a marital interest in the business (even if he doesn’t have equity titled in his name), the company’s buyer will want the husband to sign off his consent to the sale.

If you need help with your company agreements, it’s probably time to talk with an experienced business contracts lawyer like Attorney Mike Young.

Whose Business Contract Do You Use?

By Business Contracts, Business Lawyer

When you’re doing a deal, do you have an experienced business lawyer draft the agreement or do you work off of the other party’s agreement?

As a general rule, you get a far better deal when you start with a contract prepared by your business attorney instead of trying to fix unfavorable terms in the other side’s agreement.

And not only do you have to identify what the other party put in the agreement that could hurt your business, you’ll also want to revise the agreement to cover issues that were not addressed…assuming the other side agrees to it.

Don’t assume that “standard terms and conditions” are standard. In most cases, they’re standard only in the sense that the other party uses them all of the time and they generally favor that party (not you).

Yes, it’s easy for eyes to glaze over when reading legalese. However, if a deal is important, it should be done with the right contract to protect you and your business.

What if the other side insists on using their contract as the starting point? In some cases, you have to bite the bullet and use that. However, you can sometimes use the threat of going to their competitor to get the deal papered on your terms instead. It really depends on whether or not the other side needs to do business with you.

Regardless, start your potential deals with an assumption that your contract will be used instead of the other party’s agreement. If nothing else, you may get concessions off the bat in exchange for agreeing to use their contract during the negotiations.

Are You Commingling Multiple Businesses?

By Business Contracts, Business Lawyer

If you own multiple limited liability companies or corporations are you commingling the businesses?

If so, you expose these ventures to unnecessary legal dangers.

For example, a court might decide one company is the alter ego of the other and hold both of them liable in a lawsuit. Instead walls of protection, you’ve let down the drawbridge and invited in plaintiffs to raid all of your companies.

So, how do you avoid this commingling danger?

Treat them as separate companies.

For instance, don’t raid the bank account of Company A to pay Company B’s expenses simply because the latter is short on cash.

And when the entities do business with each other, use written contracts that explain the rights and duties of each entity under the agreements.

For example, if Company A wants to advertise on Company B’s website, there should be an advertising agreement in place where B gets compensated somehow by A for running the ads. No freebies from one company to the other simply because you own both.

What about intellectual property? If one company owns the IP, but you want both companies to use it, chances are you’ll need some type of licensing agreement between one entity as owner (licensor) and the second entity as licensee.

An experience business lawyer can help you put the right documents in place to protect your multiple businesses from improperly commingling. And if you’ve already been commingling, he can help you fix the situation to minimize the legal risks.