The Power of the Pen in Business Agreements

<h2> The Power of the Pen: Business Agreements <h2>

<p> “Trust, but verify.”

-Ronald Regan and Mikhail Gorbechev <p>

<p> If you are running a business with other people, you must use written agreements – period. No arguing or compromise. It must be in writing. If they are not in writing, you may think you don’t have an agreement. That’s not true. You do have an agreement, but its terms may be decidedly different from what you thought they were. And it might be some judge or jury that is given the task of figuring out what the agreement was. Usually this happens at the worst possible time; after the fact when emotions have already taken over and every delay or turn of events costs you serious money. <p>

<p> Most business people think of agreements as a means of holding the other party accountable, much like the quote above implies. Yet, there is another, a much more important purpose than that. <p>

<p> When I practiced law, from time to time, I would prepare business agreements for clients. My client and I would meet in private first and I would take some time to understand the nature of the business and the relationship as well as the major concerns and goals of my client. I might prepare the first draft of the agreement and submit it to the other attorney for review. Shortly thereafter, we would have a four way “sit down” conference where we would negotiate the final terms. <p>

<p>  Somewhere along the line, my client would often express a desire to have the upper hand in the business relationship. It would sound something like this: “I want to make sure that he does “X” otherwise it’s going to cost him big time. You make sure he suffers if he doesn’t do what he says he will – I want to be able to take him to the cleaners.” <p>

<p> I understand sentiment and when there is a place for it in some agreements (Business buy/sells for example). This is a situation where typically there is little on-going interaction between the parties once the deal is consummated. As long as the buyer makes his not payments on time, there is little for him and the seller to discuss after the closing. In most business agreements, inflicting pain should not be anywhere near the top of your list of goals. <p>

<p> In situations where you and your partner are starting or expanding your business relationship, there is a more important purpose for having a written agreement. And that is to understand, clarify, and discuss every important aspect of the business relationship so that you can develop a true understanding of your respective needs and expectations. <p>

<p> I’ve been involved in hundreds, perhaps even thousands of business agreements; negotiating, drafting, structuring – every aspect imaginable. It has been my experience that the overwhelming reason that business relationships fail is due to poor communication (the business itself may succeed or fail for other reasons). An effective business relationship is all about good communication, and the business relationship for partners is set forth in the written agreement. <p>