Contracts can help avoid problems or at least minimize them; hammering out an agreement at the outset of a relationship helps provide a roadmap for constructive ways to handle potential disagreements.
But contracts, whether they’re leases, employee agreements, restrictive covenants, privacy policies or bills of sale, aren’t set in stone once an attorney has drafted them. Unfortunately, that’s just the way many small and midsize businesses treat these essential documents: as something to check off a legal to-do list early on and then never revisit.
Regular contract reviews should be baked into your processes. Here’s why:
Entity operating agreements
Partners or LLC members sometimes disagree because they never had an agreement in the first place. Other times, their agreement is so out of date, it’s essentially meaningless. To avoid surprise issues regarding buyouts, capital expenditures or the division of profits, check in on these documents annually and immediately if you bring on a new partner or your business is experiencing financial difficulties.
Even if every aspect of your business stays just the same, your state’s employment laws might not. Revisit employee agreements every year or so, and do so right away if you create a new position, hire someone from outside the state or the country or adjust benefits for an individual employee. One recent update for many businesses this year? Telecommuting or short-term telecommuting agreements.
Noncompete agreements, non-solicitations, and confidentiality agreements protect your business, client lists or intellectual property, so they’re worth keeping up to date to reflect the scope of your operations. If you’re inheriting the covenants, be sure to ask your attorney if they’re reasonable and, by extension, enforceable.
Bill of sale documents
With so many material terms likely, including price, quantity, duration, late fees, and potential remedies, don’t forget to adjust your bill of sale forms as your company grows. Businesses sometimes neglect to update this document when a new purchasing representative takes over an existing account. Be as specific here as possible: If the buyer is a company, both the company name and the person authorized to make purchases should be included.
Depending on your business, you might maintain contracts with a long list of vendors—everyone from your site host to your landscaper. This makes an error or failure to update potentially devastating to a business. Keeping current on your contracts (and staying ahead of recall dates) encourages good relationships with vendors and healthy competition for your company’s business.
If you rent a commercial business space, your lease is going to be quite a bit more complicated than a typical residential lease. Make sure your attorney reviews it at the outset and then again each time it’s up for renewal, giving special attention to unique needs like the transfer structure if your business moves or closes, exclusive use if you’re in a competitive industry, nondisturbance agreements, and personal risk.
Your In-House Legal Team
Let our team proactively prevent legal exposure and operate as your in-house legal team. To learn more about all the ways the experienced attorneys at InPrime can help reduce your legal threats and limit exposure, give us a call at 770-282-8967 or contact us online today.