You’ve decided you need a business contract for your service business. After all, you want to make sure you get paid. So you take some liberties in borrowing one from one of your competitors. Or you just Google it and do your best to put one together. Better than nothing right?
Wrong. Your bootlegged business contract can definitely be worse than nothing and using it can definitely blow up in your face.
Here are a few ways that I’ve seen bootlegged business contracts completely fail.
#1 – Failure to state the business name in the business contract.
Believe it or not, I’ve seen more than my share of business contracts that don’t properly state the name of the business. Sometimes this is a result of sloppy cutting and pasting. Other times, a business improperly refers to themselves by their Assumed Business Name.
The problem. If the business contract you use with your customers fails to state clearly that they are doing business with your company, then you could lose the corporate shield protection your company provides (called “piercing the corporate veil”). Whether your company is a limited liability company or a corporation, losing your corporate shield means that your customers could end up suing you, as the owner, directly instead of being required to sue your company. This must be avoided at all costs!
#2 – Failure to state how and when payment is due.
Getting paid for your services is mostly likely the number one reason you provide those services in the first place. Not many of us are in the volunteer services business.
Unfortunately, many business contracts don’t do enough to make sure that you will get paid – on time, or even at all.
The problem. Ambiguous payment terms in a bootlegged contract can seriously delay your compensation or even make it hard to collect at all. When will you get paid? Will you be invoicing your customer? Is there a penalty for late payment or referral to collections? Are your customers allowed to withhold payment if they feel like you owe them money? These are just a few of the payment related questions that must be answered in your business contract.
#3 – Failure to clarify ownership of intellectual property in the business contract.
OK. If you have a business that involves limited intellectual property, like if you’re a contractor, or a pet-sitter, or a veterinarian, you can probably skip this section. There’s probably not too many situations where your intellectual property will get commingled with that of your customers.
However, if you regularly create intellectual property in your business services, like if you are web developer, or a coder, or a digital marketer, then this section definitely applies to you.
The problem. A poorly written contract can definitely cost you big if keeping your own intellectual property is important for your business. Without contract provisions that make it clear what intellectual property belongs to who, you could face some serious risks here. For example you could find yourself facing a lawsuit when you use what you legitimately believe to be your own intellectual property buty your customer claims as something you created specifically for them. Or, you could suffer serious business losses if your customer shares your trade secrets with your competitors even if they do it innocently since you never told them that they were your trade secrets.
A well written business contract can limit risks associated with ownership of intellectual property but a bootlegged one will almost always fail.
#4 – Failure to use the business contract to limit your liability.
This is probably the biggest way that a bootlegged business contract can below up in your face.
Providing services to customers can come with some significant liability risks. For example, if you provide digital marketing services and don’t deliver on your latest campaign, your customer might try to hold you responsible for their lost sales. Or, if your customers get hurt on your premises or using your equipment, they could sue you for their injuries. A well written business contract, tailored for your specific service business, can go far in protecting you from these liability risks. Needless to say, a bootlegged contract can’t be counted on to do this.
The problem. If a lawyer hasn’t written your business contract with the specific risks of your particular service business in mind, chances are your business is exposed to a whole slew of risks that you shouldn’t have to worry about.
#5 – Failure to specify how disputes will be resolved.
Businesses and their customers get into disputes. That’s simply a cost of doing business.
Whether that dispute is resolved easily and with minimal expense, or turns into a massive class action lawsuit that is filed in a jurisdiction on the other side of the country, is something that can be controlled by a well written contract.
The problem. A bootlegged business contract usually won’t spend much time talking about how disputes will be resolved. When not much is said, then usually it means that disputes will be be resolved with lawsuits – even expensive class action lawsuits. A well written business contract can control many aspects of dispute resolution. It can make arbitration mandatory, it can control where lawsuits need to be filed, and it can even prohibit class action lawsuits. Obviously, a bootlegged business contract that stays silent on these issues won’t help you.
The bottom line about bootlegged business contracts.
Bootlegged business contracts and your precious business don’t mix. Want the peace of mind of a contract written specifically for your business? Schedule a consult today to get started. Even better, with my commitment to No Travel Legal Advice, we can get everything done without a single meeting. That’s right. Keep running your business. Let me take care of your legal hassles with minimal hassle.