If you own a business, you undoubtedly have several contractual relationships, whether these relationships have been documented in the form of an official contract or not. Informal agreements or handshake deals might work from an operational perspective, especially if you have a long-standing relationship with the other party, but you should be aware of the risks and consequences of not having written records of your agreement.
If your company leases any premises, ensure you keep records of the original lease agreement and all subsequent amendments. It would not be sufficient to only have a record of the most current lease amendment, if it does not include all the terms of the lease. Typically, a lease agreement may have several amendments, each addressing a different issue such as a change in the area of leased space, rent amount, landlord, lease term, etc. One would only be able to piece together the complete history of and current relationship between the company and the landlord if all the historical lease documents are available.
If your company has employees, there are several factors to consider when it comes to their employment agreements. The most important question is: do you have employment agreements in place with each employee that lay out the terms of their employment, such as their wages, benefits, working hours, paid time off, confidentiality obligations, obligations towards any intellectual property or innovations created whilst an employee, etc?
Even if an employment agreement was entered into with the employee at some point in time, if the terms of their employment have since changed – maybe they have been promoted or have become eligible for a commission – such changes should be documented. This ensures that there is no room for any confusion or future complaints. For example, if the employee was part of an innovation, the agreement makes it clear that such innovation is owned by your company and not the employee; if the employee claims he is eligible for a 15% commission, the agreement makes it clear that he is in fact only eligible for a 10% commission or the agreement specifies that the 15% commission would only be applicable if the employee met a certain number of sales.
Your company likely has contractual relationships with customers, suppliers, manufacturers, contractors, subcontractors, independent contractors, agents, etc., whether in writing or not. Even having a simple contract of a few pages which sets out basic contractual terms and conditions is better than not having any written records of the relationship and agreement between the parties. If you decide to sell your business, a buyer would likely not be comfortable knowing that you do not have proper written contracts that govern the terms and conditions of your business relationship with these parties. For example, if you do not have any written contract with one of your suppliers, and the way your relationship operates is that you place a call and they send over products within 2-3 weeks, the buyer will want to see at least some written record of the relationship which sets out the terms of the relationship, general pricing of the products, any applicable warranties, etc. In these circumstances, even an email or purchase order would be better than nothing.
Having clear and complete records and documentation not only protects your company but also ensures that all parties involved are aware of their rights and obligations. If there is a dispute, it would not devolve into a ‘he said, she said’ argument, but rather be an evaluation of the intention of the parties based on what was agreed to in the contract signed by both parties.
This brings me to my final point: business owners must ensure that all their contracts are dated and signed by both parties. A missing signature means that the terms of the contract were not finalized or agreed to by both parties.
With these considerations in mind, it is recommended to reach out to an attorney that is attuned to working with business contracts and policies to ensure that your company is compliant with any documentation.
