by Monica Goyal
I recently considered entering a business relationship with a startup. These conversations always seem to end with the same awkwardness around signing an agreement. My response, as always, was: I’ll certainly look it over; sometimes I might suggest a revision, and then I may sign it.
For some reason, this attention to contracts surprises some. It’s as if contracts are seen as a necessary evil, a nice to have, rather than an important part of solid business partnerships. I totally understand. Most new businesses are most concerned with becoming profitable as quickly as possible, not spending a lot time revising contracts.
Not surprisingly, the other business owner said that in his dealings with other lawyers, the response is usually the same as mine. Let me help you understand where I’m coming from. In the first year of law school, if there is just one thing you learn, it’s that contracts are binding. They are assumed to be a bargain between two people, and if you sign on the dotted line, then you understand what you are agreeing to.
So when I hear that significant business relationships are entered into with what is little more than a handshake, I get a little nervous. I think of agreements as insurance. They are there to protect you when things go bad, and unfortunately things go bad often. And bad doesn’t usually mean that you end up in court. It could be that your co-founder or business partner decides to shut you out of your business. It could be that someone decides to take your idea. It could be that you have a delinquent payment. Or maybe someone sees your successes, and asks for a piece of it.
In all things business, signing a contract or entering a relationship is a risk and it is important that you understand those risks. If you decide not to read or even enter into a contract, then do so with your eyes wide open, and make sure it is a calculated risk, and not sheer laziness.