We talk a lot about how to make sure your contracts work in your business. We even talk about how to make sure your contract is signed the first time. Today, let’s talk about what happens when you are on the other side of the table?
What do you do when you receive a contract to sign? How do you approach the review of the contract? You want the deal to happen, but you need to understand what you are getting into. After all, not everyone is as focused on making sure their systems work with their legal, so you shouldn’t be afraid to ask questions if something seems wrong.
Reviewing a contract before you sign it is essential to protecting your business for growth. You can’t just sign every agreement put in front of you because you need the service or product offered. And, even if you do sign it you need to know what impact the agreement may have on your business moving forward.
Here are a few things to look out for when you are reviewing contracts in your business:
Term and Termination
We have talked before about term and termination of contracts, but you need to make sure you know how long the contract lasts and whether and how the contract renews. If you owe some obligation, you need to know how to stop that obligation. Can you give 30 days notice? Are you required to give notice that you do not want the contract to renew? How far in advance? When does the contract auto-renew? How long is the renewal term?
Make sure you read the term and termination provisions. Make sure, if you need it, you understand if and how your contract can renew and how you can stop it if you need to. This is a provision that gets many small businesses in trouble. Failing to understand how and when your contract terminates or renews is a major cause of litigation in small businesses. So, pay attention to your contract renewals and your terms.
Whether you are creating intellectual property for someone or paying to have it created, the intellectual property clauses are important. You want to make sure the ownership and authorship of the intellectual property are clear. It is not always necessary for the intellectual property to be a “work made for hire” if you are paying someone to help you create something, but you do want to be sure that you own your intellectual property at the end of the engagement.
Fees, Rates, Changes and Other Financial Information
You want to be sure you fully understand how you will be billed. When you must pay. What happens if you don’t pay and what rights you have to dispute fees. If you read a contract and you aren’t completely sure how you will be charged or what fees might look like, do not hesitate to ask a question about it. Especially if you had discussed any type of cap on fees or any other specific fee arrangement. Make sure the financial information is abundantly clear before you sign your contract.
Reviewing a contract is such an important part of business. They matter. Just because you think something is “standard” does not mean you should take it at face value. Signing a contract is obligating your business to something. You need to understand what that is and how it will impact your business. If you don’t, you may find yourself in some legal hot water. So, make sure whether you have it reviewed or you do it yourself (with help from good legal resources) that you do more than just give the contract a “once over” before you sign it.