Effective Contract Practices Minimize Risks For Small Businesses

Small business owners face uncertainties in running a company. But effective contract practices and strategies significantly minimize many common business risks. Relying on sound contract guidance from an experienced business law attorney prevents problems from arising and resolves much of the uncertainty inherent in business operations.

Contracts and Business Risks

Legal and financial business risks often arise from contract disputes. Poorly framed agreements or the failure to understand contractual obligations and rights can lead to disagreements and potential litigation with substantial monetary repercussions. Being attentive to details in contract drafting and implementation is the most basic strategy to minimize risk and protect the interests of the business. Getting contract management help from a business law attorney is an important part of that strategy.

Basic Contract Tools and Strategies

Specific contract provisions address identifiable risks. While these considerations and terms are not necessary in every contract, they are common in many well-drafted agreements. When the provisions are in a contract, it is crucial to understand the implications and be attentive to the related concerns.

Unambiguous Terms

Eliminating uncertainty and ambiguity in contract terms ensures that both parties have a clear understanding of their legal obligations and rights under an agreement. For example, timeframes should be clear, rather than vague. Setting definitive timelines and deadlines in a contract avoids misunderstandings about when work must be completed. Similarly, describing in detail the exact nature of the work or services that will be provided leaves no room for disagreements or disputes about what the agreement of the parties is.

Liability and Indemnification

Spelling out liability limitations and financial responsibility in a contract is sometimes appropriate. Indemnification clauses can make it clear who is financially responsible in the event of specific failures. In addition, a clause limiting liability if certain events occur can protect a business from unexpected losses. Whether these types of clauses are appropriate depends largely on the nature and circumstances of the agreement.

Termination Clause

Termination provisions in a contract determine when and how the agreement will end. A properly drafted termination clause protects all parties to the contract and avoids unnecessary risks and costs. Typical common termination clauses address breach of contract, failure to deliver goods or services, and the notice period for termination (such as 30 days).

Dispute Resolution

A more complex contract may contain provisions that relate to the process for resolving disputes when informal discussions between the parties or their legal counsel do not work to settle differences. While litigation is one way to resolve a contract disagreement, an agreement may provide for mediation or arbitration instead. Mediation utilizes a neutral third-party facilitator to moderate discussions aimed at finding a mutually agreeable solution. Arbitration involves a professional arbitrator who makes decisions about the dispute.

Force Majeure Clause

In some contracts, force majeure provisions can allocate risk by delaying or canceling obligations without a penalty when extraordinary, unavoidable circumstances beyond the control of the parties affect performance of the obligations. Force majeure generally refers to natural catastrophes (like floods) and other unanticipated interferences like riots, transportation and labor disruptions, and government shutdowns. A force majeure provision must be properly drafted to be fully effective and protective.

How a Business Law Attorney Helps

Every business should have a trustworthy business law attorney who can review and draft contracts. The attorney gets to know the business and learns the detailed circumstances relating to individual contracts before providing guidance. Anticipating the need for legal counsel and planning proactively is much better than waiting until a problem arises and then trying to resolve it. A lawyer can also help to negotiate contract terms and resolve disagreements that arise.

A business should never use form or template contracts, or a contract drafted by someone else, without first having them reviewed by a lawyer to make sure that the terms are clear and that the business is fully protected. Part of the lawyer’s role is to explain all the contract terms and ensure that the business owner fully understands their rights and obligations under the agreement.

Schedule a Free Consultation With an East Valley Business Law Attorney

In our business law practice at Peterson Law Offices, we understand that small businesses, whether new or established, often do not need a full-time lawyer but do need reliable, responsive legal counsel throughout the life cycle of the business. Our goal is to help the client’s business succeed, grow, and thrive, while minimizing legal problems and finding the best solutions when issues arise.

We provide contract drafting and review for new agreements, as well as for standard forms and contracts you use in your business operations. We always provide high-quality legal services at affordable prices, and your first consultation is free of charge.

We welcome inquiries from clients throughout the East Valley, including Queen Creek, San Tan Valley, Gilbert, Mesa, and Chandler. Schedule your free initial consultation by calling 480-878-5998 or using our online contact form.