Different Types of Business Contracts

Legal agreements, called contracts, are essential for successful business relationships. Contracts help to provide clear parameters for fulfillment of required work or other actions. They also offer protections for both parties if unusual circumstances should arise. Entrepreneurs should educate themselves on the features of common business contracts and engage a business attorney, when necessary, to ensure their legal interests are properly protected when they enter into contracts.

Commercial Leases
Businesses frequently must enter into commercial lease agreements to provide a physical location for their enterprise. State laws generally dictate the terms of these leases, which often include the location and description of the premises, the amount of rent, terms of the lease, terms for renewal, capacity for parking, requirements for signage and security requirements.

Bills of Sale
Bills of sale are generally used to transfer legal ownership of property. These contracts may be used for equipment, vehicles, or other physical property. Bills of sale generally describe the property to be transferred, as well as the purchase price. This information can be important in proving whether merchandise has been delivered or the purchase price has been paid in full.

Nondisclosure Agreements
Nondisclosure agreements may be used for a variety of purposes. These agreements may protect proprietary information during quotation of jobs, during manufacture of parts or when joint ventures are being considered. Information covered by the non-disclosure agreement should be defined clearly to ensure proper compliance for all parties. Some exclusions may be provided in the agreement, such as for information provided by a third party not covered by an obligation of confidentiality, for information in the public domain and for information already disclosed before entering into the agreement.

Manufacturing Contracts
Some types of business may be required to enter into manufacturing contracts to produce various parts to another company. These contracts may include information about quality measures, delivery schedules and other requirements that are necessary for ensuring the proper execution of the contract. Penalties for failure to comply with the contract are also included.

Employment Agreements
High-level executives and key personnel of a company may be required to sign employment contracts when high salary levels and proprietary information may be at stake. Employment contracts generally define the terms of employment, compensation, final compensation at termination, restrictions on competition with the company and methods of having disputes arbitrated.

Government Contracts
Government contracts are often deemed to be highly desirable for business, because they often mean long-term work with clear requirements. However, government contracts may include stringent compliance criteria that can add significant expense to the job. Business owners that do business with the government should consult with an attorney who can help them decipher the often-confusing language of government contracts. They should also be fully aware of the consequences if they breach the contract.

Franchise Agreements
Franchise agreements to operate established brand name businesses can be very complicated and involve both federal and state laws. Any businessperson interested in engaging in a franchise agreement should consult with an attorney who is experienced in these agreements. Franchise contracts generally include requirements for using the, name, trademark or logo of the franchise; payment of fees to join the franchise; legal requirements for use of products, ingredients or other matters determined by the franchise; and the parameters of control over the individual business by the franchise. Because these requirements are often very restrictive, legal counsel is critical to the entrepreneur.

http://smallbusiness.findlaw.com/business-contracts-forms/common-business-contracts.html

https://www.legalzoom.com/articles/8-common-contracts-to-know-about

Posted in Business Contracts |

Job Market Looking Up for Americans

The economy is beginning to take a turn for the better, as more jobs open up and the general unemployment rate begins to go down. Here are some things that you can expect in the next few years.

Less Unemployment

The number of unemployed workers is trending downwards. The Bureau of Labor Statistics reports that, from 2013 to 2014, there were 25 states that had significant declines in their unemployment rates. Among these states were the popular worker hubs of California, New York, and Washington, DC. Surprisingly, South Carolina has had the largest decline in unemployment over the year. You can find more information on these statistics here: http://www.bls.gov/opub/ted/2014/ted_20140401.htm

An Uptick in Jobs

There is beginning to be a steady increase in the number of jobs. Some industries will do better than others in the next few years. Health care jobs are one area that will grow exponentially. As the country’s population increases, there will be a higher need for health care professionals. The health care sector remained largely untouched during the recession and it will continue to see an above average growth.

Another sector that should do well is the environmental sector. Green building and sustainable business topics have become popular, since consumers are demanding that businesses take more responsibility for protecting the Earth. And as the economy begins to pick up, more companies will be able to afford green specialists to make their businesses more eco-friendly. There will be more job opportunities for environmental consultants, scientists, and green building design specialists.

Although the construction industry has been doing poorly over the past several years, this is one industry where jobs should pick back up as the economy gets stronger. New construction projects will require more architects, engineers, construction workers, and contractors. Because these jobs have declined during the recession, many people have left this industry to look for greener pastures. This could create a shortage of construction-industry workers in the future, which means good job opportunities for people with the right skills.

Positions that Remain Open

Although there are more positions open, this does not mean that they will all be filled. One feature of the current job market is a mismatch between the skills of workers and the needs of employers. Many companies are willing to hold out for an employee that matches all of the company’s credentials and requirements. Although some positions receive a lot of applicants, there’s not always someone who’s actually qualified for the job. This means that some valuable positions stay open for months.

This means a few things for job seekers. First of all, skilled professionals who have backgrounds in popular fields are actually in a shortage. Workers who get degrees in these popular fields, such as business, healthcare administration, and finance, will have the pick of the litter in terms of jobs. Employers may even be willing to subsidize training for employees who meet most of the job requirements. It’s up to each applicant to market the skills they do have and position themselves in an in-demand field. Fortunately, the decreasing unemployment rate is making it easier for all types of professionals to find work that’s in line with their skills and interests.

Posted in Economy |

Profitability of Blogs and Web Videos

With billions of people flocking to the Internet for shopping, news, entertainment and communication, users have taken to the Web at an incredibly fast pace. This technological revolution has changed the way people work as well. Many Internet users have found ways to make money with their websites and create businesses of their own.

Making money with blogs and web videos

Websites who are successful have been creating a slew of great content that compels readers to come back every time they update their site. This type of content is valuable and useful to the reader of the site. It can be easily shared and distributed amongst a network of friends, family members and colleagues.

Readers of these successful websites tend to consume useful and entertaining content on a regular basis. By giving content away for free, the owner of the website is building an audience who digests and expects more content in the future. There is a relationship between the content consumer and the content creator that is strong and secure. This can quickly turn into a string of revenue if the website owner knows what to do.

Successful websites that begin collecting revenue tend to have advertisements on their site. They will also try to use affiliate links. The website owners may recommend specific services or products to their audience. When the reader buys the product, the website owner will receive a cut of the profits.

Website owners who monetize their business will also create their own products and services for their audience. Since the readers already know and trust the website owner, they are more likely to buy from them.

Making a sustainable business

Bloggers and website owners who make their living this way plan their strategy carefully. Creating a balance between free content and paid content, they give back to their readers generously before asking them to buy a product or service.

These creators pursue partnerships with businesses, and businesses ask to partner with them as well. From large to small corporations, the website owner takes their relationships with companies seriously. They tend to partner with companies their readers will like.

Website and blog owners who are successful will also go on to sell books, membership sites and high-end services. They may also be featured in blogs, magazine and television shows.

Websites that create revenue

With this business model, many websites have found a way to make the projects they’re passionate about into a lucrative company. Here are a couple of websites that made their hobbies into a business.

The blog “Oh Joy!” has made its own success with partnerships and products that celebrate color and artistry. Joy Cho is a graphic designer, author and blogger, and posts free content regularly on her blog and video channel.

Collaborating with companies, she creates products, recipes and party ideas for them. She sells items like bowls, serving plates and cake platters for celebrations. She has also written the books, “Blog, Inc.” and “Creative, Inc.”

Pemberley Digital is a digital media company. It produces popular web video series on their website like “Emma Approved” and “The Lizzie Bennet Diaries.” Allowing the videos to be free online, these videos have gained an incredible amount of attention from their avid fan bases.

Now both of these web series shows are featured on larger sites where fans can buy episodes of the series whenever they want. Pemberley Digital also gains money by selling merchandise affiliated with their web shows.

Posted in Business Transactions, Buying or Selling a Business |

What is the Carbon Tax?

What is a carbon tax?

A carbon tax is a tax based on the use of carbon fuels including coal, petroleum and natural gas that when burned gets released as carbon dioxide into the atmosphere. It’s a form of carbon pricing to counteract the effects of global warming triggered from the burning of fossil fuels. Renewable energy resources such as wind, sunlight, and hydropower do not convert to hydrocarbon and don’t harm the environment. Carbon dioxide is considered a greenhouse gas that gets trapped in the atmosphere and contributes to global warming.

A tax on these gases is used to discourage the use of nonrenewable fuel resources and is a tax effective means of reducing greenhouse gas emissions. Furthermore, it’s a regressive tax that may disproportionately affect low income groups. Numerous countries in the world have implemented a carbon tax on energy consuming products and motor vehicles; however, many large users of energy including the United States, Russia and China have not implemented a nationwide policy of carbon taxing.

In America

While there is no nationwide carbon tax in the United States, several states have implemented their own carbon tax policies including Colorado, California, and Maryland. Voters in Boulder, Colorado passed the first municipal carbon tax on carbon emissions in November 2006, which was implemented in residential utility bills. The goal was to reduce emissions and promote renewable energy resources. In May 2008, the San Francisco Bay Area passed a carbon tax on businesses that was 4.4 cents per ton of carbon dioxide emissions. In 2006, the whole state of California proposed a law for carbon tax emissions called AB-32 that has yet to be implemented. Finally, in May 2010, Montgomery county in Maryland passed a carbon tax law of $5 per ton of CO2 emissions.

Supporters of a Carbon Tax

There are several advantages to a carbon tax, but most importantly, it will lower the rate of greenhouse gas emissions released into the atmosphere. Imposing a carbon tax incentivizes individuals to find alternative energy resources and lower their energy consumption rate. Additionally, the use of a carbon tax incentivizes companies to research renewable energy resources because energy derived from fossil fuels becomes far too costly. Furthermore, the money raised from carbon taxes may be used for environmental initiatives such as planting more trees that will reduce CO2 emissions in the long run.

Opponents of a Carbon Tax

There are many opponents to carbon taxes who often cite that it’s difficult to measure the amount of carbon a company or individual produces and the amount of greenhouse gases released into the atmosphere from these emissions. Others believe that it’s difficult to calculate the environmental cost of these carbon emissions for future generations when all theories are still hypothetical.

Other problems include the high possibility of evasion of these taxes. Another criticism is the fairness of subjecting all countries equally to a carbon tax considering most developed countries are responsible for CO2 emissions and that income welfare is higher in developed than developing countries. Finally, without worldwide participation on carbon taxes, some countries are sure to free ride without contributing their fair share of carbon taxes.

In the End

Most of the scientific community agrees that the use of burning fossil fuels is altering the climate and may have serious impacts in future generations. While it’s impossible to accurately calculate the effects of climate change, a carbon tax may be a way to reduce the detrimental impact of greenhouse gas emissions and prevent future environmental disasters.

Posted in Taxation |

The Double Irish Tax Dodge

In recent years, some of the biggest corporations around the world have been utilizing tax strategies that help to minimize the amounts that have to be paid each year in corporate tax. With tax rates around the world getting higher every year, corporations have a higher incentive than ever to find ways to avoid certain tax liabilities. In the United States, corporations like Google and Apple have been successfully using a tax strategy that legally avoids a second layer of corporate tax. This article will explain how the double Irish tax arrangement works.

What Businesses Gain

Under normal circumstances, shareholders are subjected to at least three layers of income taxation when doing business in the European Union. First, the entity doing business in the European Union would pay the domestic corporate income tax rate. In France, this is 33.33 percent. Next, the parent company in the United States would pay a 35 percent tax on repatriated profits. Finally, shareholders would pay at least 43.4 percent in United States federal income tax and net investment income tax. This means that profits derived from the sale of a widget at a $100 profit would net less than $24.52 after taxes. However, the double Irish enables shareholders to net $32.19 or more. Therefore, this can potentially be a very lucrative tax arrangement.

Necessary Arrangements

Before the double Irish tax strategy can be implemented, it first requires that corporations have a network of subsidiary entities. Before starting the tax strategy, most businesses will already have their base operations in the United States and in the European Union country that they are doing business in. The double Irish requires that businesses legally incorporate in Ireland. However, these businesses then maintain their headquarters in the United States to prevent being considered an Irish tax resident. Businesses will also need to open new subsidiary operations in Bermuda and the Netherlands. Finally, businesses will need to form a second entity in Ireland. All of this can be done for a few thousand dollars.

How It Works

Now that the business has all of its subsidiaries set up, it can now begin using the tax strategy. For example, assume that a company made a $100 profit in France. Normally, the business would be subject to French corporate tax. However, laws in the European Union only apply corporate tax in the jurisdiction where the company is headquartered and where the intellectual property is owned. In Ireland, corporate taxes are 12.5 percent. However, the tax strategy mandates that the intellectual property owned in Ireland is only held under a lease contract. This means that a tax-deductible royalty payment must be paid to the subsidiary in the Netherlands. As soon as the funds arrive in the Netherlands, they are immediately sent to the second entity in Ireland. To avoid transfer pricing laws, the funds are then stored in Bermuda. These funds can then be reinvested into any European Union business operation without any additional taxation.

After the Process

The double Irish enables businesses to reinvest European Union profits without having their growth rates hindered by corporate taxation. However, receiving any personal benefits from these profits still requires that taxation be paid. Once shareholders decide to issue a dividend to themselves, the funds are transferred to the United States, where ordinary corporate and personal income taxes apply.

Posted in Tax Fraud, Taxation |

The Crack Down of Corporate Inversion

The term “corporate inversion” has been in the news, with the recent announcement of Burger King buying a Canadian company called Tim Horton’s. The deal brought to light the corporate tactic of purchasing another company to acquire its favorable tax status, and has provoked considerable discussion about whether the practice should continue to be permitted.

Understanding Corporate Inversion

Corporate inversion sounds like an exercise practiced in the company gym, but in fact, it is a financial term than is used to describe the process of purchasing a company in a foreign country to access that company’s favorable tax status. The “inversion” aspect can occur when a larger company buys out a smaller firm and changes its headquarters to the country of the smaller firm. Generally, in a corporate inversion, one company purchases a smaller company in a country that has a lower corporate tax rate. Although the practice isn’t currently illegal, many people feel that corporate inversion smacks of a lack of patriotism, at best, and a slick method of tax evasion, at worst.

History of Corporate Inversion

The practice of corporate inversion has gone on for at least thirty years. It is believed that McDermott was the first company to engage in the practice, announcing it would become a part of a Panamanian corporation. It subsequently re-incorporated in Panama and moved its headquarters there, allowing the company to avoid paying U.S. taxes. Since that time, the number of U.S. companies that chose to implement the practice has steadily increased. As many as 76 companies have employed corporate inversion since 1983, and 19 companies have announced their intentions to re-incorporate overseas since January 2013 alone. This exodus of American companies to foreign countries has prompted the U.S. Treasury and U.S. Congress to consider revising the laws governing corporations to limit the practice.

Why Corporate Inversion Is Bad

As a result of these companies changing their incorporation to other countries, less tax is collected, increasing the burden on other U.S. taxpayers. Meanwhile, these corporations reap the benefits of lower taxes and higher returns on investment. The Congressional Joint Committee on Taxation estimates that these inversions would have brought in an estimated $19.5 billion to the U.S. Treasury over the next decade. In addition, tax experts note that the corporate inversion process itself causes a taxable event that could affect shareholders. Even holders of mutual funds that include stock from the company could take a sizeable tax hit. These problems have prompted the U.S. Treasury to begin looking into corporate inversions.

The Crackdown on Corporate Inversions

In September of 2014, the U.S. Treasury, in cooperation with the Internal Revenue Service, announced steps targeting the practice of corporate inversion. They hope to eliminate the specific techniques that allow companies to make the inversions, as well as diminish the ability to avoid taxes by doing the inversion. They intend to strengthen the requirement that former owners of the U.S. company own less than 80 percent of the new, combined entity. These actions will make inversion less financially lucrative.

In his budget for 2015, President Obama included a legislative plan to help curtail the practice of corporate inversion and make such inversions much more difficult to accomplish. Recent efforts by the Democrats in Congress have initiated legislation to stop the practice, but it is unclear whether Republicans will support such legislation.

Posted in Business Transactions, Buying or Selling a Business, Taxation |

Failure to File

Failing to timely file your tax returns is a crime. While the IRS seldom prosecutes, there is always the risk. This is why you do not use a CPA or one of those national collection companies. This risk requires a legal education, and substantial legal experience. It would be nice if the lawyer has experience in criminal investigations, as I do. It is also important that your communications about being late on returns and on the return drafting is covered by attorney-client privilege.

Being late is not uncommon. I see it frequently. The usual reason is procrastination. Don’t be ashamed of this condition, just get things right with the IRS, now that you are ready to deal with this. I also see circumstances of avoidance, because you do not have the ability to pay at the time. Wrong move, but let’s fix it now.

Let’s now focus on the return drafting itself. If it has been years since you filed, you may not have any records. I can help with that; all is not lost. Left on your own, you would report a lot more taxable income, than you would if you had help.

The common consequence of filing those returns is a payment problem. If the return you file is several years back, you are facing penalties that are about half of what you owe in taxes. And interest, while the rate is low, becomes substantially more when the several years have in past. You face the collections division of the IRS. This is where we will pick up in my next post.

Posted in Uncategorized |

Dispute Resolution: Trial

If you attempted to settle your dispute through litigation and it failed to happen, trial may be your best option. Virtually all litigation is settled. Often, the primary reason settlement through litigation does not occur is due to substantial disagreements over the monetary amount of settlement. You think you can get substantially more or pay substantially less in a trial. Your opponent believes that he or she can get more or pay less, as well. There is a parallel path here. Each side has to weigh their chances of winning at trial. Frequently someone grossly overestimates their chances at trial. Trial may wind up costing half as much as litigation did after everything is said and done.

Regardless, here you are trying your lawsuit, to settle your dispute. Each side’s case has strengths and weaknesses. Plus, there is the element of chance and human nature at play. If you lose big, you have more chances to settle. File for an appeal. The case may settle under circumstances similar to those at trial.

Going to Trial Offers Ample Opportunities to Settle

Was the Last Offer Better than Trial?

Settlement may happen before trial, once every party makes their entire case, looks at it as a whole, and decides that the last offer in mediation wasn’t so bad. I have settled a case at docket call, the proverbial settlement at the courthouse steps.

Can the Jury Influence Settlement?

If you are trying a case before a jury, it is possible that a settlement will occur after the jury is picked. Did you get a bad jury? Your chances of success may decrease, and a settlement number changes. I have also heard of cases that settled once the plaintiff has presented their case and before the defendant has presented their case. It is also not uncommon for a case to settle after the trial, but before the jury returns a verdict.

Posted in Litigation, Negotiation |

Dispute Resolution: Litigation

In my previous blog posts, I discussed settlement through informal dispute resolution and settlement through demand letters. Today, I will discuss settlement through litigation.

The Ultimate Goal is to Reach a Settlement, Not to Enter into Trial

Many associate litigation with going to trial. Yet, less than 10 percent of litigation cases actually result in a trial. The other 90 percent are either settled or dropped before trial occurs. As such, most litigants file suit with the goal of settling the dispute – not to enter into a trial. If you cannot settle a dispute through informal resolutions or through a demand letter, a lawsuit may be your best option.

Can You Afford a Trial?

Before you make the leap into litigation, you should understand the expense of trial. If a lawsuit inevitably ends up in trial, you must be financially prepared for it. A good lawyer will walk you through the expenses and discuss your options. If you cannot afford a trial, settlement through demand letter negotiation is a preferable avenue. Personally, I have yet to encounter anyone who wanted to spend the money on a trial unless they have exhausted all other options for settlement.

Bringing Suit Proves a Powerful Point

Ideally, you file a suit to prove a point. You are telling the other party that litigation will ensue if a settlement is not reached. I have seen lawsuits thrown immediately into settlement negotiation, even through mediation, without any discovery being conducted. However, this is not the rule. Typically, some discovery does take place. In such circumstances, you must hope that the amount you will gain in settlement exceeds the expense of discovery. Always keep this mind, as discovery is expensive.

The Settlement Process

If settlement is not discussed early on in the litigation process, it typically leads into a mediation forum. During mediation both parties are forced to exchange settlement offers repeatedly. Many mediation forums result in a settlement agreement on the spot. However, some attorneys and/or parties want to gather all of the evidence before coming to a settlement decision. This means mediation may take place both after the discovery process is over and just before the preparation for trial. Obviously, this is a course of action for a lawsuit in which larger amounts are at stake.

Next Time…

In my next post, I will discuss trial as the final form of dispute resolution.

Posted in Litigation, Negotiation |

Dispute Resolution: Demand Letter Negotiation

My previous post was about informal negotiations in dispute resolution. Today, I want to talk about negotiations through a demand letter. If you were unable to reach a compromise through informal negotiation, sending a demand letter to the opposing party is a great next step in dispute resolution.

When Should You Send a Demand Letter?

Depending upon the nature of the dispute, the severity of the consequences that may occur when the dispute is resolved, the circumstances around the dispute, and the personalities of the parties, sending a demand letter may be the right thing to do. It is important to speak with a lawyer regarding your specific case.

What are the Benefits of Sending a Demand Letter?

If a lawyer is assisting you in negotiations, he or she will prepare and send the demand letter to the receiving party. What is the advantage of doing this? By sending a demand letter, you set forth all of your legal claims that you would use in a court setting. The receiving party may think that you will sue if the dispute is not resolved within the demand letter stage. This may make the receiving party more inclined to reach a compromise outside of court.

What Does a Demand Letter Look Like?

If your idea of a demand letter comes from the movies, you may be disappointed. In a good demand letter, all claims are presented, but there are no histrionic threats. Nor is there ugly language. An experience lawyer knows if the letter is later shown to a jury, dramatic and overly aggressive language may prejudice the jury against you. A good lawyer knows how to be serious and aggressive, without making you look bad.
 
 
A party who did not take you seriously in your effort for informal negotiation will take you seriously after you have sent a demand letter. They will likely be more willing to negotiate, instead of just ignoring you or being polite after your informal effort.

Posted in Negotiation |

Dispute Resolution: Informal Negotiation

There are four forms of resolution of a dispute in, for instance, a contract dispute. First, there is an informal negotiation between you and the other contracting party. Second, there is negotiation after a demand letter has been sent by your lawyer. Third, there is litigation, followed by a settlement, achieved informally between the lawyers or through mediation. Fourth, there is trial of the dispute.

Informal Negotiation

In this blog entry, I discuss the first form of resolution: informal negotiation. Let’s say that the contract is executory—neither side has fully performed all of his/her’s side of the contract. When neither of you has fully performed what you were supposed to do, there is an opportunity to negotiate informally. There may be two different forms of dispute: what a default in performance should cause to happen, and what a term of the contract means. Frequently these two forms are merged into one dispute: one party does not perform due to a difference in opinion about what a term of the contract means. One party’s performance or non-performance is, in the eyes of the other party a default.

Everyone knows the advantage of negotiating informally. You may be able to resolve a dispute without lawyers getting involved. Common opinion is that lawyers create more of a dispute than is necessary, and make resolution more difficult. And they cost money. Regardless, I support informal resolution when it is possible.

However, informal resolution works better when you have a lawyer advising you. You do not want to “give away the farm.” The lawyer’s purpose is to inform you of the strength of your legal position, so that you know how far you can push the other party. The lawyer, being a very experienced negotiator, can advise you on what you should do next in your negotiation with the other party. And your next step, after the other party has reacted. Let’s hope that you can reach an agreement with the other party. How do you document your agreement, and what should be in the document? Once again, your lawyer advises you, and may even give you a rough draft of a very informal document.

I have plenty of successful experience advising clients with respect to this informal negotiation to resolve a dispute. If you are unsuccessful at this step of dispute resolution, we can take the next step together. I’ll discuss the second step of dispute resolution in my next blog entry.

Posted in Uncategorized |

Boilerplate Revisited

My previous blog entry was devoted to a brief explanation of the use of boilerplate in contracts. I explained some of the basics about some boilerplate provisions, and showed why they made a difference.

Some boilerplate can be enforceable, and, in at least one instance, may, or may not, be enforceable. In my previous blog entry, I discussed the choice of location where a suit must be filed, and the consequences that may flow from such a choice. I said that big companies usually succeed in getting the location near them. But my comments on location should be examined further.

Boilerplate: Location

There is a diversity of citizenship in some suits. All this means is that the parties are located in different states. These diversity suits are occasionally filed in federal, not state, court.

Sometimes, an argument gets advanced that the choice of location provision can be ignored by a federal judge, and that the judge can determine where the suit should be located. The reasons might include fairness to the parties and convenience, in the sense that all of the evidence and witnesses are located in one place, which is not the big company’s location, but the small company’s location. The federal appeals courts are divided as to whether the judge has that power.

If, in your case, the judge has that discretion, the choice of location clause in your contract may not be enforceable.

Posted in Uncategorized |

Contract Boilerplate

What is a Boilerplate?

You might have heard of a “boilerplate” before. Boilerplate refers to the miscellaneous provisions in a contract which are in every contract. However, boilerplate provisions do vary from contract to contract, and the terms of a boilerplate provision may vary. So, the issue in boilerplate provisions is the content that you want for each provision. The content of some provisions is negotiated between the attorneys. I am going to focus on one boilerplate provision that will provide an example of how important the terms of a provision can be.

Boilerplate Provisions:

Usually there will be a litigation provision. This boilerplate provision can have huge implications. It states where a suit will be filed, if one becomes necessary, and which state’s laws will be used.

Location of a Suit

If you have two parties that do not do business in the same county, the location of a suit will result in some additional expense of the litigation for one party. More importantly, it determines the inclinations that the judges may use during the litigation. For instance, some counties are known to be very conservative, and as such, the judges in that county are more likely to be conservative. There are exceptions, but generally this can be true. There are many considerations that have to be used to determine the likely nature of the judges, but location of the suit is a very important factor. The same can be true with respect to juries. For instance, if a county is very conservative, the jurors may be conservative in deciding who wins, and how much the other party has to pay.

The location of a suit can even be more important, when the parties to a contract live in different states or countries. The travel expense can be large. The expense of learning the tendencies of judges and juries can be large, if this can be done at all. When the location is picked by one party, that party will likely know the local factors that may affect who generally wins, and who generally loses. You will not.

Choice of Law (Which State’s / County’s Law Will be Used?)

The second term in a litigation provision is the choice of law. Which state’s or country’s law will be used in determining the outcome of a litigation? The law does vary from state to state, or country to country. Choosing between Texas law and New York law can be a very important decision. You know Texas law, but you do not know New York law.If the choice of law is not made by the most powerful person in the negotiation of the contract, it pays to know something about the other state’s laws, before a decision is made.

Pay Attention to the Terms of a Litigation Provision

And the terms of a litigation provision are very important. I frequently see clients who never thought a contract would be broken, encounter a serious breach of the contract. The question is whether to litigate. If the party who breached has its own location and the use of its own laws, a big question arises as to the cost of the litigation, and, more importantly, who is likely to win. When you are likely to win, a good settlement is easy to reach.

Posted in Business Contracts, Litigation |

How to Negotiate a Contract

Many books have been written, and many seminars have been given about negotiation. Personally, I like to keep it simple. Negotiation is horse-trading; it is about power. If you are the only supplier of a product that a buyer needs, then you have the power and the ability to get most all of what you want inserted into the contract. The reverse is true, as well. If there are many suppliers of the product, the buyer has the power. When there are many suppliers and many buyers, negotiation is an art form.

For the purpose of this blog post, I will assume the last circumstance in which there are many suppliers and many buyers. In this circumstance, each side may get some of what they want, but no one will receive all of what they want. There may be agreement on many of the terms of the contract. However, the other terms where there is a polite conflict of goals, you must evaluate which terms can be traded, and which cannot be traded.

Draft the Contract

While you may want to determine the elements of business contract — the who, what, when, and why (see my previous blog post for more information) — on your own, many terms will not be negotiated until a written contract is submitted. Whichever party drafts the contract will likely include many terms which are favorable to their own party.

Identify the Terms Which are Worth Negotiating

At this point, in review of this contract, your attorney should identify the terms which are worth negotiating, hopefully evaluating the terms with you. After all, you are the client and the boss. Plus, you understand the buyer/seller on a personal basis, and therefore you understand what decisions the buyer/seller may make. Your attorney has no working knowledge (expect based upon considerable experience) about what objections the opposing attorney may make, separate and apart from his or her client.

Discuss Areas of Conflict and Come to an Agreement

Now, you receive a draft. By and large, your changes to the terms will be made by a revision of the contract, which is returned to the other party’s attorney. There may be a few exchanges of drafts. Often, three exchanges are made before all of the terms, and the wording of each term, is agreed upon. It is common, after the first exchange, for both of the parties’ attorneys to discuss the terms which are the subject of conflict. The second exchange should result in an agreement of terms, but sometimes it does not. Words can be important, as there are many aspects to a term of the contract. You attorney should iron out any differences in wording in order to protect you. This is a mini-horse trade. Wording, and the consideration of mini-terms, may be the difference between a successful suit on a breach of contract, or a failing one.

Examples of Negotiating a Contract

Now, to give a few examples. I encourage you to read my preceding blog post on the elements of business contract, so that you can understand more precisely the alternative terms for the basic elements of a contract.

A seller will want the buyer to include its principal, personally, to be listed as a buyer. Of course, the buyer will want the opposite. As mentioned before, this negotiation is all about power. You may succeed in getting the principal to guarantee a terms of the contract, such as payment. But, this is not certain. It all depends on the power.

Payment is a major term. Hopefully, both parties have agreed upon price before turning the matter over to an attorney for advice and negotiation strategy. Frequently, a major term is whether you will be paid before, or paid after the product is delivered and inspected. As a seller, you will want to negotiate for the “paid before”, and hope that you can get a compromise, such as half up-front, half after inspection.

If the product takes some time to manufacturer, but the buyer needs it quickly, you should negotiate for a compromise on delivery time. Insist on your time period, and when the other party counters with its time period, counter with a compromise, which itself may come to be negotiated. If you cannot get a compromise, the buyer may go to someone else to make the purchase.

Next Time…

In my next blog post, I will discuss “boilerplate” and why its content may make a difference in your contract.

Posted in Business Contracts |

Elements of a Business Contract

This will sound like a middle school English class — but, you must be able to specifically address the who, what, when, and why to have the basic building blocks of a business contract. I have encountered many clients who did not have all of these aspects pinned down. In these cases, I would counsel them, and either send them out to discuss the contract further with the other party, or negotiate the rest of these basic terms for them.

Who?

The “who” is obviously important. To draft a business contract, I must know whether you are dealing with an individual or a company/organization. Want must be specific and precise about the names of those involved. To identify the involved persons even more precisely, we want to document their address or state of origin. Personally, I like to have both the company and the individual named as parties in the contract, to ensure their involvement in the contract.

What?

The “what” goes to the heart of the deal. What is the party going to sell? What is the buyer willing to pay? Again, we want to be precise, so a detailed description of what is being sold must be stated in the contract. You do not want the other party thinking that they are going to get more than you have agreed to deliver. The “what” is where you catch any misunderstandings about the deal. And what are the terms of payment? You need to know not only how much will be paid, but when that amount will be paid.

When?

This feeds into the “when” of the contract. When is the product to be delivered? When will the payment be made? Does one party order the product from the other? If so, by when? When does the contract start? When does it end? There are plenty of “whens” in a contract.

Why?

“Why” gives details about many other things that need to be in the contract. Why are you getting into the contract in the first place? Why are you willing to give the other party payment terms that include credit? Not only does “why” lead to other terms that need to be stated in the contract, it also lends itself to critical thinking about the deal that you are making, and whether some contract terms need to be further negotiated.

Next Time…

In subsequent posts, I will address some examples of negotiation of terms, and just what does “boilerplate” mean.

Posted in Business Contracts |