The “Air-Tight” Contract Myth and the Attorneys that Propogate It

Guest Post by Anthony Rocco |

Disclaimer: I AM NOT an attorney. The opinions presented in this post are exactly that; opinions. They have been formed by years of my own first-hand experiences in entrepreneurship and small business legal matters. Always consult an attorney before making legal decisions that can affect your business and life.

These days, when a small business owner visits an attorney to draft up a contract he’s liable to walk out with a forty page monstrosity, at the cost of thousands, possibly tens of thousands of dollars. An attorney will often sit in front of him (or her) and espouse the importance of “covering all the bases” and promise something “rock-solid” and “air-tight”. It is of course their job to convince you that they are worth the 250+ an hour they are billing out.

And it’s usually over-kill.

Drafting legalese-heavy, “airtight” agreements is a great way for them to add more billable hours, but it’s often a lousy way of crafting agreements for small businesses. Often, it’s akin to killing an ant with a shotgun.

The problem is that most small business owners don’t realize that it is just as easy to sue over a 40 page, “airtight” agreement as it is to sue over one written on a cocktail napkin. Both are binding contracts in any state, by law. And yet, the longer and more restrictive the agreement, the more material the attorneys will have to litigate over.

Let’s take a partnership agreement as an example:

A contract between business partners should be straightforward.

It should be breathable. It should clearly reflect the position of each party, and then craft guidelines accordingly. Circumstances continually change in business. Therefore, the terms of the contract should be flexible enough to change, should the situation call for it.

My own attorney urges his clients to revisit the buy/sell terms of a partnership agreement every year or two. There’s a good reason for this: many lawsuits between partners arise from disagreements over the buy/sell terms when one or both wish to part ways. A contract’s terms can seem fair today, yet five years down the road — when jobs have changed and conditions have shifted — they might seem unfair. By revisiting the buy/sell terms frequently and changing them to meet the conditions on the ground, you keep the contract fresh and help minimize the possibility of future litigation.

An example of a good contract is the Constitution of the United States of America. After all, it is the contract between the people and the government. The reason the Constitution has held for so long is that it consists of a broad outline for how government and it’s people are supposed to function. It doesn’t attempt to tie down every facet or dictate the outcome of future disagreements. It simply sets up a playing ground to let the parties work together.

By drafting a short agreement, with clear and concise statements of fact, you’re giving litigation attorneys relatively little to argue over. You’re also giving your future judge a clear picture of what each party set out to do and accomplish with the agreement in the first place. It may very well save you money in the event of litigation, and will certainly save you money in drafting the agreement.

On Side Note:

If you reside in South Florida, and need advice on where to find a good business attorney, I can make recommendations. Otherwise, use the guidelines above to help you qualify an attorney. In my opinion, a typical partnership agreement, between two parties, should cost no more than two thousand dollars to draft. Anything more, and you’re probably contributing to his kid’s trust fund.

Anthony Rocco is a entrepreneur and small business consultant. He currently runs an appliance review blog, Appliance Buyer’s Guide, which features unique and relevant household appliance reviews, ratings, and comparison tests.