When is the Right Time to Bring in an Attorney for a Business Contract?
Every business, no matter how small, will eventually need to enter into some type of transaction that requires a formal contract. Small business owners may be tempted to draft a contract themselves or choose from online sources that promise easy-to-use contract templates. They may not feel the need to involve an attorney unless something goes wrong.
While we understand the desire to save time and money with a DIY approach, a one-size-fits-all solution can not possibly capture the nuances of every unique business transaction. There are very good reasons for contacting an attorney early in the process rather than waiting until there is a dispute, even if only for a quick review. Understanding when it’s best to involve a professional will help prevent errors, misunderstandings, or omissions that can lead to costly outcomes.
Four Key Times to Involve an Attorney
Unless a business is big enough to have its own legal department or a corporate attorney on retainer, the question of when to bring in an attorney for a business contract is bound to come up eventually. Even in-house counsel sometimes brings in an outside specialist. Some contracts might need the expertise of a patent lawyer or tax attorney, for example.
While having a lawyer draft or review every single contract might mitigate the majority of risk for a company, it isn’t always feasible—or necessary. Executing simple contracts like a bill of sale or a standard lease agreement may not require a professional’s help.
In general, a more realistic answer of when to call an attorney is whenever a contract involves complex ideas or when the terms of the agreement have high stakes. For example, ironing out the complicated details of a merger or acquisition is something that definitely needs an attorney’s expertise. So does something like negotiating the terms of a licensing agreement for an invention. In both examples, a mistake in the contract could cost millions of dollars, lock one or both parties into an unfavorable situation, or put the company’s future at risk.
We have identified four times when it is in a business owner’s best interest to get professional contract help.
1. When Asked to Sign a Contract
When presented with a contract, the need to have a lawyer review it increases along with the stakes or dollar amounts involved. For example, a multi-year service level agreement with a retailer for your company’s product merits an experienced lawyer’s opinion. On the other hand, an agreement with an independent contractor for a single project in exchange for a set fee is fairly cut and dried.
Still, there is value in having an attorney review a contract to make sure there are no surprises. They can explain the terms so their client completely understands their rights and obligations as well as what will happen if one party does not meet their part of the bargain. If a business owner foregoes the help of a professional, there could be unanswered questions. For example, can the independent contractor in the above example be compelled to complete the work? When is payment due and what type of penalty or interest will be charged if it is not paid on time?
2. When You Want to Formalize an Agreement
An oral agreement can be legally binding. But you’ve probably heard the saying “A verbal contract is not worth the paper it’s written on.” Written contracts lay out the details of an agreement to avoid confusion and safeguard the interests of both parties in a court of law. As soon as it is evident that an agreement with another party needs more than a handshake and a promise, it is time to draft a formal contract.
As with #1 above, the need for an attorney will depend on the importance and complexity of the transaction. Hiring an attorney to draft the document will ensure that nothing is missed and that the terms have the intended results for both parties. As an alternative, a business owner could ask a lawyer to review and recommend changes to a document the business owner drafted.
3. When a Business Changes
The two previous examples involve new contracts. Existing contracts should be reviewed periodically, especially when either party undergoes a major change. For example, a company expanding its services to include delivery might consider tweaking the terms spelled out in its client contracts. Will they promise delivery in a certain time frame? Will there be an additional fee? What recourse does a customer have if they do not receive their items? A contract attorney can make sure the wording still represents the company’s best interests while covering all new considerations.
4. When a Market or Industry Changes
Just as with company changes, similar adjustments should be made to contracts when a business owner anticipates industry changes. Consider 2023’s labor dispute between the Writers Guild of America and Hollywood studios. The increased use of Artificial Intelligence in the industry triggered the WGA to demand changes in how their work was represented and compensated.
Similarly, any company might see changes ahead for the type of work it does. An experienced contract attorney can structure a contract and adjust its language to accommodate changes when necessary.
Pitfalls of a Poorly Drafted Contract
A good contract safeguards the rights and clarifies the obligations of both parties. A poorly drafted one, however, could result in a number of unpleasant outcomes. There could be few options in the case of a breach. A business might not get paid, may be forced to provide unanticipated products or services, or could end up in litigation.
All of these situations could end up more expensive and disruptive than hiring an attorney to draft or review the contract in question. By bringing in an attorney for a business contract—and bringing them in early in the process, business owners can rest assured that their contracts won’t have the following issues:
- Ambiguity. Every contract can be subject to interpretation, but clear, concise professional language will eliminate confusion.
- Not enforceable. Contracts must follow the laws of the jurisdiction to which they apply. For example, requiring a non-disclosure agreement from an employee in a state where NDAs are not legal, would not hold up in court.
- Omitting key points. Attorneys know how to close loopholes and will think of issues their clients might not anticipate. For example, adding an arbitration clause to a contract allows disputes to be handled out of court. And a termination clause gives parties a way out in certain situations.
- Unforeseen risks. Not considering a variety of eventualities can increase risk exposure. That said, a written contract naturally includes an Implied Covenant of Good Faith and Fair Dealing for both parties’ protection.
While any contract can suffer from issues that could lead to litigation, a professional contract attorney is less likely to make a mistake than a layman. Lawyers understand the meaning and implications of contract language and how the document should be structured.
What a Contract Lawyer Brings to the Table
Hiring a contract attorney puts business owners at an advantage over those trying to draft a document themselves. An experienced lawyer will take the time to understand their client’s goals and the purpose of the contract. They can prevent a business owner from entering into an agreement that does not serve the interests of the company, or worse, harms it.
It is important to find an attorney familiar with the local jurisdiction and who has participated in litigation when contracts are breached. This experience gives them the ability to craft a strong document that provides the assurances and protections the company needs.
A Contract Attorney Can Safeguard Your Business Interests
Whether a business contract is an occasional necessity or part of day-to-day operations, these documents and their contents should not be taken lightly. Errors, vagueness, or the exclusion of important points can lead to costly mistakes and even litigation. Often the expense and inconvenience are much greater for a company than hiring a lawyer from the start.
For all but the simplest agreements, contact an attorney who specializes in contract law like Swiecicki & Muskett. The higher the stakes of a transaction, the more important it is to get professional advice. The future of your business could depend on it.
Cover Image by wichayada suwanachun by Canva.com