U.S. businesses execute millions of contracts each week. Some established businesses have in-house counsel or trusted outside counsel to guide them on these matters, but a surprising number do not. And startups rarely have the resources to retain qualified counsel, instead, they trust non-attorney CFO’s and others to review and negotiate contracts.
With so many contracts, and so little time, it’s difficult to read and understand each contract, but failing to read them — or assuming they are all the same — is like playing Russian Roulette. It only takes one legal problem to bankrupt a business.
To assist non-attorney corporate officers in businesses with tight budgets, here are TermScout’s tips on how to review business contracts:
Understand what you are signing and why.
Too often lawyers and non-lawyers dive right into a contract, scanning each paragraph for provisions they don’t understand or don’t like. That’s a mistake. Take a moment first to consider what the contract’s purpose is and how it will further your company’s goals. If you understand those things, you will be in a much better position to evaluate the contract’s specific provisions.
Talk to an attorney with expertise in contracts and your company’s specific industry.
The best lawyer to advise you is one with experience in contracts and in your company’s specific industry. For example, if your company is a healthcare provider, there are numerous laws specific to that industry, such as HIPAA, which governs patient privacy. If your company is an Internet Service Provider, your lawyer should understand the Digital Millennium Copyright Act. If your company is in the real estate industry, your lawyer should be familiar with the laws governing that industry, including environmental laws.
Protect your IP.
For most companies, intellectual property is one of their most valuable assets. Your company should review each contract it signs to make sure you’re not assigning unintended rights in your company’s IP. If you’re sharing confidential or proprietary information with another party, you should also make sure the contract requires that party to protect that information.
Make certain your contracts comply with privacy laws.
Your business must comply with applicable privacy laws, and if your company collects personal information from European citizens, that includes complying with the General Data Protection Regulation (GDPR). However, if you are going to share personal information about others with a business partner, it’s vital that you require them to also comply with those laws — and to defend and indemnify you if they don’t.
Have an attorney on standby that can guide you when you are unsure about an issue.
Even if your company does not have in-house counsel or a hefty legal budget, there may still be times when it is wise to have an experienced lawyer review a contract, particularly if you are unfamiliar with the contract provisions. Many lawyers are eager to develop relationships with young companies and hope to grow with the company.
Use TermScout’s Red Flag Reports to Quickly Summarize Contracts for You.
The dilemma many businesses face is that not reviewing contracts exposes the business to tremendous risk, but paying an attorney to review each contract may be too costly. TermScout’s Red Flag Reports streamline your company’s contract review process, saving time and money. Red Flag Reports can help quickly identify which contract provisions require attention. Sharing the report with your attorney can also greatly reduce your company’s legal expenses by enabling your attorney to focus their time on the provisions that matter and providing them with citations to the provisions in the contract that may be concerning.
Each Red Flag Report contains:
A short description of what the contract means.
A list of red-flagged items in the contract with plain English explanations of the issues and citations to the exact provision in the agreement so you can quickly dive deeper when needed.
Answers to the top questions that matter in the specific agreement type. Subscribers or large orders can customize the questions that TermScout answers in each agreement type.
A fairness rating to show how the contract compares to similar contracts in the industry.
Peace of mind. Rest assured that we’ve read the entire agreement and alerted you of the major issues.
While TermScout is not a law firm and can’t offer legal advice, our extensive experience in reviewing contracts in many industries (and court decisions arising out of litigation involving such contracts), enables us to know what provisions are standard, what provisions need attention, and how a given contract compares to similar contracts in the given industry. For more information about Red Flag Reports or TermScout’s other products email email@example.com.