Why You Should Have a Contract for Every Business Relationship

Many business deals get done on the proverbial handshake — an email exchange, a discussion on the golf course — but those types of deals could be the kiss of death for your company if they go bad and there is little documentation to back up what you thought were the terms of the deal.

In case you were unaware, a contract can be entered into in several ways, including both written and verbal. A U.S. court of law can find that an email or even a simple verbal exchange constitutes a contract, putting you smack in the middle of a business relationship or obligation you may not have even been aware that you entered into. Before you know it, you are embroiled in litigation and have nothing to help you prove your side of the story.

This is why contracts are so necessary for any relationship where money changes hands. Contracts offer built-in protections, including provisions for:

• Disputes to be handled outside a courtroom, via binding arbitration or mediation;
• Which state’s law will be applied if a dispute arises;
• Payment of your attorney’s fees by the other side if you prevail in the dispute;
• Spelling out each side’s expectations in the agreement, including the type of goods/services rendered, delivery dates, price, etc.

Most business partners have only the best intentions at the beginning of a relationship, but your rose-colored glasses could blind you to potential threats. The purpose of having an attorney involved early in the process to draft or review a contract is that their focus will be on anticipating the worst case scenarios and protecting you from what could happen.