When you decide to go into business with someone, it is important for you to define your rights and responsibilities so that both parties know exactly what is expected of them. A well-drafted contract can actually prevent certain disputes from arising in the first place. The mistake I see my clients making time and time again is failing to memorialize their business agreements with a writing signed by both parties. Oral partnership agreements are legal and enforceable here in California. But without writing, if litigation is necessary, the trier of fact (whether judge or jury) will have to determine the terms of your agreement based upon the testimony of two or more witnesses.
The most common excuse for failing to draft a contract is that a person’s partner is a family member or friend. The belief at the time the partnership is started is that the person can be trusted. Why else would you be going into business with the person? The fundamental problem is that money and family/friends do not mix. How many friendships or fights with family members have you had over money in the past? The thing is that a well-written contract can help your business arrangement by clearly defining your rights and responsibilities. What do you do when the business needs more money? When can you take some of the capital you put into the business out? How much should salaries be? How many hours should each of you devote to the business endeavor?
If you do have a dispute that you cannot resolve, do you want to have it resolved by mediation, arbitration, binding arbitration or litigation? Should the prevailing party be entitled to attorney’s fees? How long is your agreement going to last. What happens if one of you files for bankruptcy? What happens if one of you gets divorced? Who should be personally obligated on your lease? I hope that by now you get the idea.
If your contract covers the things that you think might go wrong in the future, you can help prevent those things from ever going wrong by a well-drafted contract.
For all of your contract, business litigation and family law needs, contact The Marcus Law Firm at 661-257-8877.