Get it In Writing | Why Written Agreements Are Important

There is nothing like brainstorming a new business. The energy that comes from a meeting of the minds is galvanizing. Making money from a new product or service can be life-changing.

Before you start turning your basement into a workshop and begin a crowdfunding campaign, take a couple of deep breaths. Many people have started well-conceived, well-funded businesses with others only to see their enterprise crumble under disagreements, disputes and personal animosities.

Handshakes are great, but one of the best ways to prevent startup failure is to put business agreements in writing. This is true even in cases where business partners are old friends or family members.

Written Agreements Offer Clarity

It’s important for potential business partners to discuss things. However, people can easily come away from phone conversations and meetings with different understandings of the content of the discussion.

When a discussion focuses on things like business plans, responsibilities and money management, implied agreements aren’t good enough. Putting agreements into writing allows all stakeholders to review what the other stakeholders understand about their agreement or agreements. If a written agreement highlights an area of dispute or confusion, stakeholders can address and negotiate that area before committing to the business.

Written Agreements Offer Protection

This is particularly true when a business partner invests a significant amount of his or her own funds, intellectual property or labor into an organization. Without a written agreement that stipulates repayment of seed-money or ownership of intellectual property, or that issues shares of a business on the basis of work contributed, partners will remain unprotected in case the partnership breaks up or the business fails.

Written agreements can also protect personal relationships. When you go into business with a friend or family member, you may be putting your relationship at risk. You can minimize this risk by getting the details of your partnership in writing and including an exit clause that stipulates the protocol for ending the partnership. A clean break is less likely to trigger hurt feelings.

Written Agreements Make Disputes Easier to Navigate

When business disputes occur, it’s important for partners to work together to quickly resolve them. However, when stakeholders find themselves stymied by disagreement, it may be necessary to bring in a third-party mediator or, in extreme cases, begin the process of dissolving the partnership.

In such cases, it’s much easier for arbitrators, small business attorneys and judges to navigate the dispute if there is a written agreement. These third parties can refer to the agreement when entering negotiations or making a decision about the future of the business.

Getting Help With a Written Agreement

Not all contracts and written agreements are created equal. In fact, state laws may restrict certain terms and clauses as unconscionable. If your agreement violates the law in some way, a judge may determine that it is invalid. Contacting a startup attorney to help you draft an agreement can maximize the effectiveness of your agreement along with the protection that it offers.

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