Contracts: Not Just For The Mob

Warning: The following post may come off as a bit cynical, but I feel like the advice is sound, so I’m going to say it.

I’ve spent a lot of time lately talking to one of my friends about a new business he’s starting up in partnership with another company. He’s basically offering consulting services that his partners can offer as part of a larger package that they sell to clients. Things are going well, with one major exception: he has yet to sign a contract with his partners. To illustrate why this is a major issue, let me share another story.

Another friend of mine was hired to work as a contractor for a small startup. As part of his compensation package, my buddy was promised stock options “once things start to go well.” Things started to go well, and when my friend decided to have that conversation about the shares, which he described as “uncomfortable” at best, the earlier conversations about equity had been forgotten and at the end of the day my friend was left with a fraction of what had been promised him.

The moral of the story is twofold:

1. Contracts are great because they allow you to state the conditions of your business relationship at the very beginning. This allows for conversation that results in clearly-set expectations on both sides. And at the end of the day, those clear expectations can save you some uncomfortable, relationship-rending conversations down the road.
2. People will make deals for things: help, money, goods, services, and probably a lot of other things I can’t even think of/categorize. But the fact is, unless those deals are on paper, they never happened. Sure, your partner/employer/associate might still make good, even without a contract. But you’re throwing yourself at their mercy, and it seems that when a lot of money gets involved, people become a lot less merciful. Want a good example of this? Just look at how many families get torn apart by estate disputes when a wealthy relative dies without having a solid will in place.

Keep in mind that a contract still might not be enough to insure that the agreement happens. But it at least provides some extra protection for you, and more importantly, it provides a common frame of reference for your business relationship.

The moral of the story is this. Next time you enter a business relationship, get a clear, solid contract in place. LegalDocs.com has a good, free contract outline that can help you create your own contract, or you can hunt down something more specific in FindLaw.com‘s extensive list of contract examples.