Article Published in New Business Minnesota’s March Issue

Erin Schulte Swanson has published an article discussing effective business contracts in this month’s issue of New Business Minnesota. The March 2011 issue features articles from 13 Twin Cities professionals highlighting questions commonly asked by new business owners. Erin’s article is reprinted below:

Law / Contracts

By Erin Schulte Swanson

Erin Schulte Swanson owns ES Swanson Law, PLLC, a law firm advising business owners regarding contracts, acquisitions, trademarks, copyrights and general business law. She may be reached at (612) 564-5292, Erin@SwansonLawMN.com, and www.swansonlawmn.com.

In today’s challenging economy, many businesses are experiencing problems with growing receivables, independent contractors failing to perform their duties, and vendors defaulting on service contracts.

Effective contracts help companies overcome these problems by creating mechanisms for collecting unpaid accounts, preventing workers from taking customers and other valuable information, and limiting liability. Here is what every new business should know about getting the most from its contracts:

1) Is the contract enforceable? In general, a contract must be voluntarily executed by parties at least 18 years old, and every party must benefit from the transaction. The agreement must also clearly define all material terms of the transaction. However, contracts may be invalidated on a variety of other grounds, so consult an attorney for an opinion specific to your circumstances.

2) Is your company liable for the acts of its workers? First, make sure all customer contracts include a release discharging your company from liability for damage. Then add indemnification provisions to employee and independent contractor agreements so your company may recover damages caused by employees or independent contractors.

3) Can your company recover attorneys’ fees and court costs? Courts rarely award attorneys’ fees and other collection costs unless the parties have agreed to such terms in writing. Make sure your contracts provide for this recovery.

4) Does the contract limit liability for breach of contract? First, include broad release language relieving your company from liability for events out of your company’s control. Second, include a limitation of damages provision. This acts as a backup provision, essentially limiting your company’s damages to a specified dollar amount should a court disregard the release language. Often these provisions limit damages to a simple refund of the price paid by the customer.

5) Does the contract prevent employee theft of customers and proprietary information? Make sure your company has nondisclosure agreements in place with all workers who have access to customer lists, pricing strategies and other confidential information. Then enter into non-compete and non-solicitation provisions with all key employees and independent contractors. For these provisions to be enforceable, the duration, geographic scope and activities prohibited by the restrictions must be reasonable. Because the worker is giving up some freedom to work in the future, he/she must also receive sufficient consideration for executing the provisions.

When carefully prepared, contracts will effectively help your company collect unpaid accounts, protect its bottom line, and reduce liability. To maximize your company’s success, make sure your company is getting the most out of its contracts.