Contracts and Negotiations for Business Owners

Most people enter into a contract on a daily basis without even consciously knowing that they are doing so. Contracts are legally binding agreements between two or more parties, and are a common mechanism for conducting the majority of transactions in almost every aspect of our business lives. Managers and business owners contend with contracts all the time for their dealings with various entities such as partners, suppliers, employees, landlords, financial institutions, service providers, insurance companies, contractors, vendors, customers and clients.

A contract derives its importance in power, especially in business transactions, from the fact that it is binding on the parties and that there is a legal remedy available against the party in the event of a default or the breach of that contract.

Requirements of a Contract

An enforceable contract (whether written or oral) must have the following essential elements:

  • Offer and Acceptance. There must be a clear or definite offer to enter into the contract by one party followed by an unqualified acceptance by the other party.
  • Consideration. Each party must give the other party something of value or take on some obligation which is legally enforceable.
  • Meeting of the Minds. There must be a mutual consent between the parties to the essential terms of the contract and all parties must intend to be bound by those terms.
  • Elements of a Contract. Though there can be valid oral contracts, the term “contract” often refers to a written agreement. A typical contract may include some or all of the following elements:
    • recitals and introductory material
    • definition of key terms
    • purpose of the agreement
    • promise or obligation for each party and any triggering conditions
    • warranties, representations, or covenants
    • boiler plate provisions
    • arbitration clause
    • merger clause
    • liquidated damages clause
    • jurisdiction and venue clauses
    • available remedies
    • signature blocks
    • exhibits and attachments

Many of these clauses and the language of the terms can look boilerplate until something goes wrong and they could be very costly. We can assist and help in providing the right language and negotiating terms that are most favorable and that protect your interest. Agreeing to enter a contract with unfavorable terms can be acceptable for a business, if done with knowledge of the consequences and the proper weighing of the risk/rewards involved but entering a contract with hidden land mines can be a costly mistake if done without the proper understanding and analysis.

Contract Formation

Entering into a binding business contract typically involves three phases:

  1. Evaluating the Deal. Each party analyzes the perspective arrangement and its pros and cons. They try to analyze the risk and rewards and what obligations and liabilities may arise depending upon any change in circumstances in the future.
  2. Reaching an Agreement. The parties negotiate for favorable terms, mitigation of risk for them, etc. and come to an agreement on the terms. This is usually followed by a formalized written contract or some other documented evidence of the arrangement. In a simple transaction, the written record may be as simple as an I.O.U., receipt or purchase order.
  3. Performance and Enforcement. Once a contract is in place, the parties have undertaken a legal obligation to fulfill their mutual obligations. If a party fails to perform, the other can sue to enforce the deal or get other remedies if the other party cannot or will not perform as agreed.

Elarbee Law assists and represents business owners and entrepreneurs in drafting and negotiating contracts related to various business activities, including:

  • Buy/Sale Agreements
  • Service Contracts
  • Releases and Waivers
  • Property Agreements
  • Shareholder Agreements
  • Operating Agreements
  • Lease Agreements and Loan Documents
  • Non-Disclosure Agreements
  • Non-Compete Agreements
  • Employee Agreements

Business Lifecycle

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