While many business owners are negotiating acquisitions, purchases or other business opportunities, lost in the importance of fundamental deal terms is the determination of which party’s contract will be used to memorialize the agreed relationship. When seems like something trivial could go a long way to making sure your company benefits the most from the business relationship. Even if both companies have a version of a given agreement on hand, such as a distribution agreement or purchase agreement, you should make sure that you insist on using yours.
The major reason why a company should use its own agreements, assuming they were properly drafted by the corporation’s attorney, is that the company’s agreement should immediately put them at an advantage over the prospective business partner. When drafting your agreement, your attorney will know what deal points are priorities, and will be able to craft language to make sure the agreement covers those points to your benefit. Your attorney will also draft your form agreement so the rest of the terms tilt in your favor, for example, indemnification, limitation of liability, and warranty clauses.
For the same reasons that using your own agreement is advantageous, using the other party’s agreement could put you at a disadvantage. Even when your company, and your attorney, has a chance to review and revise the other company’s agreement, the base points for negotiation begin in favor of the other party. The give and take of contract negotiation rarely results in a company getting every favorable term, so you’ll undoubtedly have to sacrifice certain points in order to gain others; the initial terms can go a long way to ensuring the other party is the one making more sacrifices. Another issue to consider is that you may incur higher legal fees to negotiate the other party’s agreement rather than reviewing proposed changes to your form.
If circumstances require that you use the other party’s agreement, it is critical that you have that agreement reviewed and negotiated by an experienced attorney. Failing to review and negotiate the agreement can leave you in a situation where each term of the agreement is stacked against you. It is in your company’s best interest to remove as much of the advantage gained by the other company using their agreement as possible. If modifying terms is not possible due to the leverage the other party may have, it is still important to have legal counsel review the agreement and flag any key issues that could prove problematic. Signing an agreement without having it reviewed by your attorney is a risky practice than can end up hurting your business.
This article is a brief explanation of the rationale behind using your own agreements when entering into a business relationship. Many other factors must be considered before entering any agreement. Should you need assistance with preparing form agreements for your company to use, reviewing and negotiating another party’s contract, or otherwise need help with any aspect of your business, or would like to schedule a free initial consultation, please contact Waltz, Palmer & Dawson, LLC at (847)253-8800 or contact us online.
Waltz, Palmer & Dawson, LLC is a full-service law firm with various areas of service to assist your business, including: Employment Law, Intellectual Property, Commercial Real Estate, Litigation and general Business Law services. Individual services include Estate Planning, Wills and Trusts, Probate, Guardianship, Divorce and Family Law.
This article constitutes attorney advertising. The material is for informational purposes only and does not constitute legal advice.
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