Doing things right on the legal end of business transactions is of the utmost importance to protect your interests and advance your business. What “doing things right” may mean in the context of any transaction depends of course on the particulars of that transaction, but here from long experience are four rules to demonstrate the general principle.
Rule No.1: Get it in writing.
An obvious precaution, but surprisingly enough it is often ignored even in relatively important business transactions.
In the rush to conclude an attractive deal, business executives may decide to rely upon an assumed oral agreement with the other party, even one presumably supported by exchanges of e-mails or other correspondence, only to find out soon enough that there never was any real “meeting of minds” between the parties in regard to essential elements of the deal, with each party interpreting things differently (and more likely than not to its own advantage).
The outcome is often a busted deal and lost business opportunity, acrimony and ill will on both sides, and if one party or the other feels sufficiently aggrieved, costly litigation. So for any transaction of importance, make sure to have the terms of your deal clearly stated in writing. It helps to keep in mind this maxim from the Hollywood film business: “Oral agreements aren’t worth the paper they’re written on.”
Rule No. 2: Start with a Memorandum of Understanding for complex or “high value” transactions.
A Memorandum of Understanding, or MOU, sometimes also called a Letter of Intent or Term Sheet, lays the groundwork for a proposed transaction by stating the parties’ mutual intent to enter into the transaction and outlining its intended structure, its basic terms and condition, and each party’s essential requirements and responsibilities in the transaction.
An MOU is not itself intended, except in special circumstances, to be legally binding and should clearly say so, but once in place it will serve as a master “blueprint” to guide the parties and their respective attorneys in preparing the definitive, legally-binding agreements for the transaction. Having an MOU in place sharply reduces the drafting and negotiating time needed for these agreements and limits the scope for raising new and potentially contentious or even deal-breaking issues during the negotiations. A carefully prepared MOU at the start of a complex or “high value” transaction will therefore help save the parties time and money in getting to the endgame: definitive agreements ready for signature.
Rule No. 3: Have a Confidentiality Agreement before disclosing sensitive information.
A Confidentiality Agreement, sometimes also called a Non-Disclosure Agreement, is needed to prevent unauthorized disclosure or use by a third party of your confidential, sensitive or proprietary information and trade secrets. It is typically used at the outset of discussions to provide the third party with such information for purposes of evaluation before entering into a comprehensive business transaction.
Depending on the circumstances, a Confidentiality Agreement may be expanded to cover such additional matters as non-circumvention and non-competition. Its provisions should also stipulate that money damages may not be a sufficient remedy for breach or threatened breach by the third party and that you, as the disclosing party, will be entitled to seek in addition injunctive relief from a court compelling the other party to perform its obligations.
But in all cases the provisions of a Confidentiality Agreement must be carefully drafted to ensure its enforceability as a whole. Defects in the drafting can be fatal to enforceability. And always keep in mind that without an enforceable Confidentiality Agreement the information you disclose may no longer be exclusively yours to control, or to profit from.
Rule No. 4: Use well-drafted agreements to avoid disputes.
A corollary to Rule No.1, but equally important, this rule should be part of any business’s tool kit for managing risk.
Care in preparing agreements to be clear, consistent and thorough obviously costs money up front, but as a protective measure of risk management it stands to save you far greater amounts of money down the road by helping to avoid costly re-negotiations, remedial actions and do-overs, and when things go wrong that can’t be fixed, expensive litigation. The time and money spent on getting things right the first time in your agreements is therefore not just a one-time cost, but rather a longer-term investment in the success of your business.
As case studies to demonstrate what “doing things right” entails in particular contexts, here are links to three articles I have published as a columnist on corporate law for the San Diego business newspaper The Daily Transcript:
- “Using international arbitration to resolve contract disputes”
- “Tools of international trade: using exclusive distribution agreements for export sales”
- “The long-arm of U.S. anti-bribery law in international business”
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