We all know how important it is for a small business to have all agreements in writing. But once it’s written, how many people then periodically review their business’s contracts? I’m going to venture a guess and say very few.
Unlike those glorious crock pots that let you “set it and forget it” when you’re making dinner, drafting a business contract and then neglecting it is a surefire way to, well, start a fire.
Why should I update and review business contracts?
Circumstances change. Relationships change. We change.
When a business enters into an agreement for the first time, it does so with its present conditions in mind. But circumstances, operations, and even owners evolve over time. So, it stands to reason that the contracts based on those variables need to change to keep up.
Think of it this way: when a child is born, parents usually have a nursery for the baby, all stocked with a crib, diapers, and sweet baby-appropriate décor. As the baby grows up, the nursery stops being suitable; and while I’d pay good money to talk to an adult who still lives in their nursery, I probably won’t find someone like that.
The same is true with business contracts. Using a default agreement for a variety of different transactions without occasionally revisiting it is just like living in your childhood nursery as an adult. It’s inappropriate and, frankly, wrong.
Commonly Neglected Business Agreements
Business Operating Documents
LLC operating agreements and partnership agreements are some of the most neglected business documents. Founders typically draft an agreement when they first organize the business. They then put it aside until there are major changes.
However, your business documents determine how your company can operate. Keep what works but be ready to make changes when it’s appropriate.
Independent Contractor/ Service Agreements
Businesses usually draft an agreement with a contractor and then use this same contract with every contractor the business subsequently uses. It’s tempting to treat these contracts as “form agreements” or “templates.” Not all contractors are identical, and contract terms may vary even when the parties are the same.
For example, BusinessPeople, LLC drafts a sales agreement to sell products they manufacture. For their agreement with Party A, they use a contract that is appropriate for sales domestically. BusinessPeople then uses the same agreement with Party B, an international distributor.
Even if the products are the same, the laws governing the contract are completely different. A form agreement would possibly create massive issues for everyone down the road.
Contract Provisions That May Require Updates
Rights in Operating Agreements
Like I just mentioned, most businesses draft their operating agreement at the inception of their businesses. So, it’s not surprising that the owners can’t perfectly predict how the business will be run and the kinds of rights they’re comfortable giving a manager or other owners.
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