Every entrepreneur has questions swirling around at all times – is your idea going to work, are people going to buy, will they like it, what about taxes, am I legally protected, what about entities, can I use this youtube video, etc. As the saying goes, ”you don’t know what you don’t know.”
Early in a startup, spending lots of money on a lawyer to ensure everything is perfect is pretty far down the list of your priorities. And, we don’t blame you. But we do want to help you get by until you can afford a good attorney. Of course, if you are well-capitalized, you should absolutely hire a CPA and an attorney immediately. But, for those that are working from the ground up, we’re going to try to help make this easy for you to protect yourself even if you’re using the cheapest online services like Legalzoom and Rocketlawyer (pro tip: use a premium online services designed for business owners – of course, we recommend Drafted Legal). Customized legal work is ideal but you can make use of the online legal services if you must. We’re going to give you some tips to improve your protection when using online legal resources.
There are many things you can do to help turn one size fits all legal forms into useful documents. These tips should get you started and help get you more bang for your buck:
1. Analyze your risks.
Take a look at your business and the risks that come with it. For example, if you own a dog walking company, what are some things that could go wrong? Well, a dog could get sick and you might need to take the pet to the vet. What if the bill is really high? You might need preapproval for authorization. On one hand, you want to take good care of my client’s pets and get them the care they need. On the other hand, you don’t want to get stuck with a pricey vet bill. What’s the answer there, prior approval by the owner to pay for any vet fees so that you don’t get stuck with the bill. What else? What if someone breaks in after you have entered the house? Let’s set up a good process to ensure we lock everything but let’s also be clear that we are not responsible for any damage or theft by pets or anyone else. What if the pet bites a toddler without warning – who is responsible? We need to be clear that we are not liable for the pet’s actions while in our control.
2. Read your document.
Know what it says. Online documents are usually reader-friendly and not filled with legalese. If you don’t understand what it says, look for another resource (like Drafted). Don’t use one that you don’t understand.
Take the time to learn what is in your documents. What many online sites don’t do is educate customers about what’s in the documents and what implications certain clauses could have on you or your company. A common response I hear when asking what their agreement is with their client is, “ I really don’t know, it’s just something I got online.” Take the time to know what you are signing and learn some basics about business law. If you are serious about your business or protecting yourself, it will pay off in the long run.
3. Customize your document.
“The Devil is in the details” is an understatement in contract law, so get specific about money, time, and the performance of the contract. If you fail to adjust the details of a stock contract you picked up online, you will regret it and end up losing money and probably paying a lawyer to fix the problem. One way to address the details is by focusing on Money, Time, and Performance. There is no reason why you should have a contract that does not specifically state how much money is owed, when the money is owed, and the terms of what is to be performed in exchange for timely payment.
In my opinion, it takes more work if you use a one size fits all approach like Legalzoom, but it’s still doable. I encourage clients who use online legal to edit the agreements as needed because most of the online companies are so vague that they are not as helpful if you have to enforce the agreement. Be sure to spell out the deal between you and your client as clearly as you can.
Pro Tip: Add a prevailing party clause (this is a little trick to make sure a lawyer will help you enforce it…it provides that the winning party of a lawsuit can recover the legal fees; this might help you convince a lawyer to take your case without a huge retainer. Don’t sneak anything in there. The point of a contract is to clarify your agreement. Don’t try to game the system or sneak in a term you have not discussed. Be clear and upfront.
4. Dispute Resolution.
Try to utilize mediation if you can. This is a nonbinding and informal process. Basically it brings everyone to the table to settle and a mediator encourages the parties to settle by taking offers back and forth to each party. Arbitration, on the other hand, is where you pitch your case to an arbiter (similar to you would to a jury) and what the arbiter decides is final. I like the flexibility of mediation as well as the option to take the formal court route as needed because it can apply some pressure to the offending party.
Pro tip: Know your jurisdiction. Do your best to research state law on your industry. This is especially important if you borrowed an agreement or downloaded one from google because it could be from anywhere. Know the jurisdiction and why it needs to be clearly addressed in the contract. The first thing I do when addressing a legal dispute is to figure out which court has jurisdiction. I often see contracts stating jurisdiction is in Florida, but both companies are owned in South Carolina and the interactions all occurred in South Carolina. Make sure you get the right State and if it’s possible in that state, demand mediation in the contract so you have the options to resolve your issues in a cost-effective and timely manner.
Best Practices for Legal Contracts
Like anything else, you get what you pay for. If you need to protect significant investments or assets or are operating a highly profitable business, you should consult with a good lawyer – and have his or her number on speed dial. However, if your needs for legal documents are more routine and less risky, then you may be able to utilize good legal documents from a reputable source. We recommend our industry-tailored documents at Drafted Legal because they anticipate the needs of your specific industry and will hold up in court (but, better yet, they should prevent you from ever having to get that far anyway!).