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3 Key Considerations When Entering a Business Agreement

Every business agreement lays the foundation for a professional relationship, but not all contracts are created equal. Whether you’re drafting, reviewing, or signing on the dotted line, understanding the intricacies of your agreement is crucial. A poorly constructed contract can lead to misunderstandings, disputes, and costly legal challenges.

Kirk vonHilsheimer, a senior associate attorney at Conrad & Scherer, has extensive experience in navigating the complexities of business agreements and ensuring that his clients’ interests are protected. Drawing from his expertise, here are three critical considerations to keep in mind when entering a business agreement.

1. Define the Goals of the Agreement

Before entering into any agreement, ask yourself: What are the goals of this partnership, and does the contract support those objectives? A strong business agreement should:

• Clearly outline the purpose of the arrangement.
• Include terms and conditions that advance the shared goals of all parties.
• Avoid unnecessary or ambiguous provisions that could lead to disputes.

Review each clause to ensure it aligns with the intended outcome. For instance, if the agreement is for a joint venture, confirm that the profit-sharing terms and responsibilities reflect the contributions of each party. A contract that doesn’t align with your goals is a liability waiting to happen.

2. Be Prepared for a Breach of the Agreement

No one enters into a business relationship expecting it to fail, but breaches happen. Whether it’s a missed payment, failure to deliver services, or other non-compliance, you need to prepare for the worst-case scenario. Consider including:

• Remedies for Breach: Specify the actions to be taken if a breach occurs, such as monetary damages, termination of the agreement, or mediation.
• Dispute Resolution Clause: Outline whether disputes will be resolved through negotiation, arbitration, or litigation.
• Indemnification Provisions: Protect yourself from liabilities caused by the other party’s breach.

Planning for potential breaches upfront can save time, money, and stress down the road.

3. Assess the Time and Scope of the Agreement

A good business agreement is neither open-ended nor overly restrictive. Ask yourself: Is this agreement appropriately limited in time and scope?

• Timeframe: Specify the duration of the contract. Is it a one-year agreement, renewable upon mutual consent? Or does it terminate automatically upon the completion of a project?
• Scope: Clearly define the activities, responsibilities, or geographical areas covered by the agreement to avoid overextension or vagueness.

For example, if you’re entering into a non-compete agreement, ensure that the time and geographic restrictions are reasonable to avoid unenforceability. Similarly, if a service provider agreement is too broad, you may find yourself liable for costs outside the intended scope.

Peace of Mind Through Preparation

Entering a business agreement is a significant step, and taking the time to address these three considerations can make all the difference. By defining your goals, preparing for potential breaches, and ensuring appropriate limits on time and scope, you set the stage for a successful and harmonious partnership.

At Conrad & Scherer, our attorneys specialize in protecting clients’ interests through thoughtful contract review and litigation support. If you have questions about a business agreement or need legal assistance, Kirk vonHilsheimer and our team are here to help. Contact us today to learn more.