Common Contract Mistakes To Avoid
MY NAME IS ANNETTE. I’M AN ATTORNEY FOR ENTREPRENEURS. I’ve learned a lot about what it takes to run a small business after successfully running my own creative business. Today, I combine my passions for law and small business to teach other creative professionals & entrepreneurs how to streamline and lay a proper legal foundation for their business.
I love fine print. I’m the type of person who’ll read the fine print in my cell phone contract, the return policy printed on the back of my Sephora receipt, and the instruction manual that’s included with that gadget I bought. You’re probably rolling your eyes right about….now….. and thinking, “who is this chick and man, she really needs a life. “
Contracts – the topic is about as exciting as watching paint dry. Yet, like it or not, they’re essential to running a business. As a lawyer for creative entrepreneurs, I work with many small business owners and while some have their legal game in order when it comes to contracts, there are others who well, let’s just say, need a crash course in contracts. Regardless of which camp you fall into, here are some common mistakes to avoid with your contracts:
Not Having a Contract
It makes me cringe every time I hear a creative professional entering into a new business relationship WITHOUT a written contract. At the most basic level, one of the major benefits of having a contract is that it helps clarifies expectations between the parties and avoid any misunderstandings. For example, if Jim and Jane agree that Jim will paint Jane’s house for $500 – at first glance, this seems clear enough. But when we dig in deeper, we realize, there are still a lot of unknowns. For instance, who is responsible for purchasing the paint and supplies? Is that included in the $500 cost? When will the work be completed? Will Jim be painting the inside or the outside of the house or both? Having a contract creates a platform to think through and clarify these terms so you can minimize the risk of any disagreements in the future. Also, in the event of future confusion or disagreement, you have a document to reference each party’s rights and obligations.
If you don’t have contracts in place for your business, get them now! Click To Tweet
Not reading a contract or not understanding a contract before signing
I know, I know… You’d much rather be focused on running that lovely business of yours than trying to decipher all that legal mumbo jumbo. But remember, contracts impose legal obligations on you and/or your business and being unaware of key aspects of your business is not a strategy for success. Every creative professional and entrepreneur should have a basic understanding of the law to protect what they’re working so hard to build. You’re running a business now and it’s time to think like a CEO. So, read your contracts or find a lawyer to help you.
Assuming you have a contract and you’ve actually read it, here are a few more common mistakes to avoid:
Incorrectly Identifying the Parties to the Contract
A common error is to use the name of a person representing a party rather than the proper name of the party. For example, if your business is an LLC and enters into a contract with a client, make sure the contract identifies the LLC as a party, not you personally. If you sign a contract in your individual capacity, rather than as the authorized representative of the entity, you are personally liable under the contract.
Defined Terms Are Used Inconsistently Throughout the Contract
After a term has been defined, it will be capitalized each time that it is used. Defined terms should be used consistently through the contract as internal conflicts in terminology will cause confusion and affect the way the contract is interpreted in the event of a dispute.
Not Anticipating the End of a Contractual Relationship
Contracts are much like dating. There’s usually a beginning, middle and an end. The end of a relationship is not always a bad thing – you delivered your service/product and the client no longer needs your service/product. But sometimes, they’re ugly – your client is a nightmare or your client is unhappy with your service/product. Think through the circumstances under which parties can terminate the contract and any obligations that must be upheld upon termination. Does the contract allow the parties to terminate the contract at any time, or does it require that the terminating party notify the other party in advance of its decision to terminate the contract? Does the contract terminate on a specific date or upon the occurrence of a specific event? Upon termination, do the parties have specific obligations they need to uphold?
Improperly Numbered Sections and Attachments
This one is such an easy fix, but it often gets overlooked. When preparing a contract, you may go through various drafts – deleting or adding paragraphs and attachments. Oftentimes this changes heading numbers and internal references to attachments or other sections. . Always run through the agreement and make sure all the headings and subheadings, as well as any attachments, are consecutively numbered and correctly referenced within the contract.
– If you do have contracts, spend some time reading through them. Do you understand all the terms? Could you explain the terms to a three year old? Does the contract accurately reflect your current policies and procedures? Review your contract against the mistakes mentioned here and to learn about more common contract mistakes to avoid get a free copy of my contract review checklist here.
– Ask for help: If you don’t understand something, find a lawyer who can explain the terms to you. Otherwise, you may not know what rights you’re giving up or what obligations you’re agreeing to undertake by agreeing to the contract.
Disclaimer: This information is for educational and informational purposes only; it is not intended as and does not constitute legal advice and does not create an attorney-client relationship between you and the author. You should not act, or refrain from acting, on the basis of information provided here without first consulting legal counsel in your jurisdiction.
What questions do you have about your contracts?