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The Importance of Tailored Legal Agreements For Businesses In Start-Up

It’s not unusual for small business owners to feel unsure about engaging a lawyer to draft their legal documents in the early stages of launching. Rather than spending on professional services, they will attempt to mock-up something of their own devising to save on resources. Whilst being thrifty makes sense when you’re testing a new business model, it’s important that business owners make savings in the right areas of their enterprise – and the legal department isn’t one of them.

In this month’s blog, mode.law Director Yule Guttenbeil shares his insights on the importance of protecting your business with expert, tailored legal documents from the get-go. Read on.

What is a common mistake business owners make in start-up?

Starting out in business, it’s natural to want to take everything on yourself. A business owner’s main concerns are kicking their business into gear and providing their product or service. They often know that they need contracts, but the reasons why they need them remain abstract – until they run into a serious issue. Many resort to copying contract terms and agreements from similar businesses or cobbling together something themselves. These copy-paste agreements often expose a business to risk, rather than protecting it.

Why do businesses need tailored agreements?

No two businesses are the same, and the terms they trade on need to reflect the risks faced by each unique business. Even two businesses who are direct competitors in the same industry will need unique agreements. Each business in a market will be working to carve out their own niche. Their business strategies will almost always see them trying to differentiate themselves from their competitors in one way or another, and this will change the kind of risk each business faces.

What do tailored agreements achieve?

All businesses will want to limit their liability as much as possible, but that is only part of what an agreement does. An agreement’s main function is to govern the relationship between the parties. It provides rules and procedures for how the parties will interact with each other. It also outlines the obligations each party will have to the other.

Most business relationships fit into general archetypes and parties are given their own titles and roles under these archetypes: borrower and lender under a loan agreement, tenant and landlord under a lease agreement, or employee and employer under an employment agreement.

Archetypes help people to broadly understand how a relationship is likely to work, but there are always details that need to change depending on who those parties are and what each of them specifically need out of the relationship. This is where copying and pasting method will let them down.

Copying terms designed for someone else’s relationship is like copying another couple’s wedding vows. They may be lovely, but promising to care for another couple’s cat called Molly is unlikely to apply to your unique situation.

What are the consequences risked by those who choose to have no agreement or go with the copy-pasted method?

Having no agreement or having a bad one will likely land you in the same place: dispute.

Business owners often only learn they need a tailored agreement once a business relationship has gone horribly wrong. It might be one particular relationship has gone sideways, or it could be that they find themselves spending most of their time fighting lots of small fires. Dealing with either of these problems is costly, not just in time and money but to mental health and personal relationships.

Court is never a place you wish find yourself in – even if you win, you lose. You lose the time it took to get to the decision. You lose the peace of mind and any sense of joy you would have had were you not fretting about the case. And, if you are lucky enough to be completely vindicated with a judgement, courts will generally only put you back in the financial position you were in before the dispute arose. There is no profit fighting a court case. This is supposedly the cure. Would you choose it over a tailored contract at the beginning?

So, how does mode.law prevent this outcome?

At mode.law we document the relationships that you want, not the ones some else has.

Our templates ask the same questions a lawyer would ask in a consultation to draft a tailored document. The forms are designed to make you think about how you want the relationship to work, even if that means you need to go away and take some time to do that. We have designed the templates to balance things that are the same between all relationships that fit an archetype, with those things that make your relationship different.

Will our templates get your legal documents right from these questions alone? We would say yes, 90% of the time. If you find you’re in the remaining 10%, you can book a consultation with us to further tailor the document to your situation. It is a bit like buying clothing off the rack. The sizes on the shelf will fit you, but you might want a few tweaks to make them pop!

* mode.law empowers Australian businesses to thrive with pragmatic legal contracts and clear advise. From now 'til September 2020, we're offering your business free access to mode.law's library of essential business contracts to help you stay strong and make good decisions in turbulent times. We know you'll have lots of questions relating specifically to your business, so we're partnered with Clearpoint Legal to provide free legal guidance via mode.law's chat service. Clearpoint Legal are even discounting their fees for any paid legal work you might end up needing. mode.law and Clearpoint Legal hope that our support helps Australian businesses to get the advice they need throughout the COVID-19 crisis. Tell your friends. It's #ModeLaw #Goodlaw