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How contracts can make or break your business

Well-written contracts are vital to the success of virtually every business. They define legal relationships and obligations. They set clear expectations and outline remedies in the event that one party doesn't live up to those obligations.

Contracts can affect nearly every aspect of business operations, including:

  • Working with vendors, subcontractors, independent contractors or other third parties
  • Leasing or purchasing office space, warehouses or other types of commercial real estate
  • Pursuing asset purchases or sales
  • Buying or selling a business
  • Hiring employees

Without a favorably drafted contract, your business could be exposed to significant legal liability. You could also end up relying on provisions that aren't enforceable or - even worse - that jeopardize the validity of the entire agreement.

To protect your business, it's important to have all contracts vetted by a seasoned attorney. Your lawyer should closely examine potentially problematic terms such as:

  • Liquidated damages clauses, which must be carefully crafted to be enforceable
  • Confidentiality agreements, which can play a key role in protecting your trade secrets and other valuable intellectual property
  • Noncompete agreements, to ensure that they are reasonable, limited in time and scope, and in furtherance of a legitimate business interest
  • Indemnity/hold-harmless clauses, which could limit your ability to pursue legal recourse
  • Minimum purchase commitments, automatic renewals and other one-sided pricing terms that could come back to bite you down the road

A single contract could contain multiple problematic provisions. It's easy for untrained eyes to overlook these potential snares. By the time a dispute arises - months or years down the road - it may be too late to salvage your profits.

Fortunately, a little vigilance upfront can go a long way toward protecting your business from contractual land mines.

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