It almost goes without saying that the agreements that a business uses for its ongoing activities should also be carefully drafted. Well, maybe it doesn’t go without saying because if it was that obvious clients wouldn’t ask for “simple 1 page agreements”.
Perhaps it would be helpful to briefly consider what role an agreement plays in a business relationship. For starters an agreement (here I am talking about a written document that is also referred to as a “contract”) must record the terms the parties have discussed and reached consensus on. In other words, you and your trading partner must have reached consensus on what each of you is going to do and receive and those rights and obligations must be accurately recorded in the document you will presumably sign. This is critical because if there is ever a disagreement about what those rights and obligations are, you need a reference point that you both agreement is the authoritative reference point.
Another reason why you should have a properly drafted agreement is to safeguard your rights and reduce your exposure to liability. Now it isn’t necessary for your agreement to be recorded in a written document for you to have a legally binding agreement (there are exceptions which include agreements to sell land or immovable property and wills). You could quite easily reach agreement orally for to sell and buy a car or enter into a complex joint venture but that isn’t recommended at all. People’s recollection of oral agreements can fade and parties can easily forget to debate a range of more subtle legal issues. In addition, the law often inserts terms almost by default unless your agreement varies those default terms (many of which may not be to your liking at all or may not suit your needs). A well drafted contract will encapsulate the consensus you have reached with your trading partner and will also contain a number of provisions dealing with issues like:
- common terms to help simplify interpretation of the agreement;
- how disputes will be addressed;
- which legal system will apply;
- can the parties transfer their rights to other parties;
- which court will decide disputes and more.
These issues are frequently not considered when parties sit down to chat about how to structure their business activities. They tend to focus on the substantive issues and assume that the rest will be taken care of. These sorts of simplified agreements may well fit on a single page but when you start to consider all the other issues and considerations that have just as much of an impact on your business relationship going forward, the document starts to get a little thicker.
In fact, entering into a business relationship is pretty similar to a marriage in this sense. Anyone who is married out of community of property will probably have signed an ante-nuptial contract and would have been cautioned to have the contract prepared as if the marriage were already ending. This is a particularly disturbing thought, especially when you are about to start a new and hopefully lifelong life together but it is necessary. Like marriages, business relationships can end and catering for the possible end of the relationship could save considerable time and financial costs down the line.
Taking the time to draft an agreement properly will serve the parties far better than a quick 1 page agreement prepared more for the sake of perceived formality and minimal functionality. Clients sometimes mention to me that a lengthy agreement will scare their partners off and my response is almost always that lengthy agreements are commonplace in business and that it is really far better to have your bases covered than to risk disaster later. I think one of the reasons clients are so averse to properly drafted contracts is more because they are traditionally drafted in obscure legalese and are intimidating. A good lawyer will draft a contract in plain language that does what it needs to do without feeling the need to use overly technical language to impress her clients.
The bottom line here is that a “simple 1 page agreement” doesn’t serve you. It won’t do what it is supposed to do and you risk being terribly exposed if you insist on having one prepared rather than having it done properly.