This is the third in an ongoing series covering the value legal agreements bring to your business beyond the surface. From boosting your bottom line and expanding your business to hiring the most talented team and improving every relationship you enter into, this series offers a comprehensive look at how effective legal agreements can enhance just about every aspect of your operation.
Every legal agreement you sign is going to contain boilerplate terms, which are sometimes referred to as the “fine print.” It's important that you understand these terms before you sign any agreement because even though they may seem tedious to read, these terms will impact you and your business if and when you ever have to go to court to enforce the agreement.
Common Boilerplate Terms Found in Legal Agreements
Some common boilerplate terms that every agreement should have include the following:
1) Terms regarding the length of the agreement, how it can be terminated, by whom it can be terminated, and under what circumstances termination is possible. Make sure to look for these terms; they are the foundation of the agreement.
2) Terms regarding intellectual property, who owns it, how it gets handled, and whether it can be used by one or both parties. If you are the creator of intellectual property for a client, then you want your boilerplate to provide that you own all intellectual property you create until the contract is paid in full. If you are the employer of someone creating intellectual property of any kind—including written words, images, graphic design, or computer code—for your business, you want the agreement to stipulate that once the agreement is paid in full, you own the intellectual property created. This is called a “work-for-hire” provision, and if your agreement doesn't include it, you are at risk of not owning what you've paid your team member to create.
3) Terms known as restrictive covenants, which are designed to prevent one or both of the parties from engaging in specific actions once the relationship has ended. One type of restrictive covenant is a non-solicitation agreement, which means that one or both parties cannot solicit work with contacts made as a result of the relationship. Another such term is a non-compete agreement, which provides limitations on future work that can be done after the relationship is over. Finally, a non-disclosure agreement (NDA), or confidentiality agreement, prohibits one or both of the parties from disclosing any confidential or proprietary information—also known as trade secrets—learned during the relationship to any person outside the relationship. An NDA can apply both while the relationship is ongoing as well as after the relationship ends. Whenever you sign an agreement, it's critical that you understand all of the restrictive covenants you are agreeing to, since they can impact you and your business even after the relationship has ended.
4) Terms covering refunds and under what circumstances one of the parties can seek the return of consideration exchanged under the agreement. If you are selling products, your agreements need to cover the terms under which someone is buying your product and when they are entitled to a refund. For example, if your customers don't like what they bought, your agreements should make it easy for them to review the terms of your refund process and clarify the circumstances under which you would provide a refund. If you are selling services, you may want to include a provision regarding chargebacks to a credit card, so it's clear when chargebacks are allowed and when they are prohibited.
5) Finally, all agreements should have terms for conflict resolution, including how conflicts will be resolved, where they will be resolved, whether you must agree to mediation or arbitration before a lawsuit can be filed, and who covers legal fees in the event a lawsuit is necessary.
When In Doubt, Ask For Guidance
Before you sign on the dotted line and before you begin negotiation, you should look for and clearly understand all of the boilerplate terms in your agreement. If you are ever asked to sign an agreement in which you don't clearly understand all of the terms, you should consult with us, as your Family Business Lawyer™, for guidance and support.
When it comes to legal agreements, there is no such thing as a stupid question. In fact, we welcome your questions since answering them is the best way we can support you—and we consider that smart! Always ask for guidance from trusted counsel before you sign because once you sign, it's too late—you've already entered into an agreement and are bound by the terms, regardless of whether you fully understood them or not. Contact us today to learn more.
This article is a service of R&R Legal Advisors and Family Business Lawyer™. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule.