This is a guest post from Goodlawyer, a trusted partner of True North Accounting. Goodlawyer’s North Star is to get more people the legal help they need. Goodlawyer empowers clients and lawyers to work together in a way that’s better for everyone. By leveraging technology, they improve the experience for both clients and lawyers — all while respecting their unique relationship and protecting their data.
Small business owners are a tough bunch. Often we have quit a 9-5 job and now find ourselves working 24-7 getting our business up and running. Luckily, the small business community overall is a helpful one.
I am a part of several groups of entrepreneurs where we share advice on best practices, walk through a customer service issue, provide guidance on social media marketing and commiserate on the ups and downs of owning a small business. Overall, entrepreneurs are a pretty caring and helpful group of people. It is important to share experiences, thoughts and advice. But sharing business contracts so that a fellow entrepreneur can use it for their own business can be much more detrimental to your business than it is helpful.
If you run a business, you are going to need contracts. In fact, you have likely entered into some already – your lease, a client services agreement, an employment agreement. Although contracts aren’t the most fun part of owning a business, they are essential. Contracts protect your business aka livelihood. So they are pretty important.
In order to cut down or eliminate legal costs, small business owners may ask another business owner for a copy of their standard contract. In theory it makes sense – the contract is already in use, the other business owner’s clients have signed it and the other entrepreneur is still in business. What could go wrong? Unfortunately, a lot. As a lawyer who works extensively with contracts, I feel like it’s my job to rain on your parade. Here are 5 reasons why you should not copy another business owner’s contract and use it for your own business.
1. Who wrote the contract?
If your fellow business owner found the contract online, where did they find it? Did they piece it together from a google search? Did they get it from a friend of a friend? Did they get it from a free contract template site? If the answer to any of these questions is yes, you need to RUN (not walk) from this contract. The person who drafted the contract may have nothing more than a degree in watching old episodes of Law & Order. There are certain legal provisions that should be in every contract. If you do not know who wrote the contract that you borrowed, how do you know that the required provisions are in your contract? It makes more sense to hire a lawyer who has extensive experience and education to draft your contract for you so that you get it right from the start.
Now what if your friend had his contract drafted by a lawyer. Surely this is a contract that you could use, right? Unfortunately not. That contract was specifically for that business, not yours. You do not know what instructions the client gave to the lawyer, what specifics they wanted inserted into the contract or (perhaps more importantly) deleted from the contract. Where a business owner hires a lawyer to draft a contract, the resulting contract is a customized piece of work. It is not a one size fits all scenario.
2. Where in the world is the contract from?
Laws differ between countries, provinces and even cities. There can be slight nuances in each jurisdiction. The only way to ensure that your contract is drafted according to local laws is to have a lawyer licensed in that jurisdiction draft one for you.
3. What does the contract say?
If you are borrowing a contract and simply copying it, do you actually know what it says? Of course, you can read through the thing and get the general gist. But there are complexities in legal language that do not always result in clear contracts (hello “witnesseth”, “indemnification” and “ad idem”). If you do not understand a provision in the contract, do not use it for your business until you find out what it means. Lawyers can help you to understand the provisions and can even draft them in a way that uses more simplified language.
4. How old is the contract?
I have seen business owners using contracts that were drafted in the 1980s. Think of how much has changed since then! Could you imagine having a photography contract that did not contemplate how images could be shared online? Contracts need to be up to date not only to reflect changes in technology but also changes in law.
5. Is the contract for a specific industry?
If the borrowed contract is not from your industry, there may be information in it that is not relevant to your business. For example, photographers often have clauses in their contracts setting out provisions protecting their equipment and digital images. If a business coach copies a photographer’s contract, these provisions are not relevant to the coaching industry. Of course these provisions can easily be deleted from a contract, but have you considered what is unique to your industry and needs to be added? A borrowed template from another industry would be silent on the intricacies of your industry. As the saying goes, you don’t know what you don’t know.
Copying someone else’s business contract to use for your own business is never a good idea. There are too many questions and not enough answers. Your business is your livelihood; don’t leave it open to risk. Talk to a lawyer - today.
Read more of our Small Business Basics articles that may be helpful to you as you grow your small business.