Guidelines for Drafting a Business Contract in Los Angeles, CA
By: Jack Chammas Glendale Business Litigation Lawyer
Many of us never see the need to draft proper business agreements during our day to day interactions at our work or place of business. And the only time we really pay attention to contracts is when it’s too late. When a dispute comes up with the other party to the agreement. That is when we rush to contract to see what we signed and agreed to. Most of the time, we realize that we agreed to terms that are not to our favor. And a simple attention on our part at the beginning of the relationship would have saved us a lot of money, headache, and legal fees. These are some of the guidelines to look for in drafting an agreement.
1. Term
How long do we want to be in business with the other side? Is it to our advantage to have a long term agreement or a short term. A long term could be 5 years or more. Short term could be month to month with auto 30 day renewals. We must study and determine what are the advantages and disadvantages to our business to be in a short verses long term relationship.
2. Termination
If we start the relationship and realize that the other side is difficult to work with. Or if we need to get out of the deal due to strategic reasons involving our competitors or other possible client, how easy is it for us to terminate the agreement? Are we able to terminate based on certain pre-set guidelines agreed to at the outset? Or would we be held liable for a breach of contract if we terminate? These are super important issues to address at the beginning of any relationship. Before you go in, you need to determine the way out.
3. Fees / Rates
Fees and rates are usually discussed at the outset. They must be clear, precise, and detailed. Most disputes occur between parties are due to a disagreement in pricing or price increases as a result of increase in overhead costs.
4. Liability/Indemnification
Each party must be held liable for its actions. And to be a fair and enforceable agreement, the liability must be properly addressed and distributed among the parties, each based on its respective responsibilities throughout the term of the relationship.
Indemnification plays an important roles especially when one party is more exposed to the end-user/consumer than the other.
5. Dispute Settlement
Many do not address this matter. What happens in the event of a dispute? What law applies? Where should we litigate this case, which state, which court. Is it economical to go through mediation, arbitration, jury trial, or other forms of alternative dispute resolution. If the parties agree from the beginning on the manner they prefer to resolve their disputes, if they arise, that would save them both unnecessary litigation in courts where most of time they would litigation the venue and jurisdiction before they even get to litigated the actual dispute itself.
6. Penalties
Penalties are used as an effective deterrent. Liquidated Damages among other things, if drafted properly can save the parties the hassle of litigation.
7. Billing Procedures
Many business relationships involve complicated monthly or other periodic billing. Each party must designate specific resources just to review billing and make sure its accurate and up to date. The agreement needs to be properly inclusive of necessary Grace Periods that need to be afforded to either party and a proper mechanism of dispute resolution in the event of billing disputes. A pre-agreed mechanism of resolving billing disputes saves the relationship and reduces the risk of tension between the parties. Mistakes happen, and the relationship should not be jeopardized as a result.
8. Flexibility, Stability, Tie-ins
Overall, an agreement must be flexible as to its terms in order to allow the parties room to work around constantly changing circumstances. Stability in an agreement allows the parties to rely on each other as they consider other long term relationships, mergers, and acquisitions. And all these pieces of the puzzle should be tied in with surgical precision to give you the final business agreement best fit for your company and your business future.
Jack Chammas is a business attorney in Glendale, California.
