Business Agreements – Miami
When parties are anxious to make a deal, paperwork can seem like a needless obstacle before the finish line. It may be difficult to take the time to negotiate a contract because no one wants to hold up the process. Ensuring that your business operates with valid legal agreements is paramount for its success, both in the best case scenarios and especially if things go awry. Below are some useful considerations to help confirm that your contracts are valid, enforceable and appropriate for the type of business you are conducting.
Contracts Should be in Writing
It is best practice to have your agreements in writing. Oral agreements can be upheld in court, but a detailed agreement in writing is more likely to be enforceable. Enforceability is essential in actions for breach of contract, so having a professionally drafted agreement can help limit your risk.
When parties disagree on the meaning of a certain written term, courts tend to interpret the contract “contra proferentem” – meaning, against the drafting party. If you are the contract drafter, you can include a contract term to specify that the court should assign equal weight to each side’s interpretation. A Florida litigation attorney can help make sure you are prepared in the case of a dispute.
THE NECESSARY ELEMENTS OF A CONTRACT
As previously noted, contracts should be in writing. There are certain types of contracts, including those for the sale of land and contracts that cannot be performed within one year of the making, that must be memorialized in a signed writing to be valid under the statute of frauds. In addition, below are necessary elements of a contract in Florida:
Mutual Consent, Offer and Acceptance
To form a contract, both parties must enter into an agreement through their own free will with the mutual intent to be bound by the agreement’s terms. A contract must include a specific offer and a specific acceptance of that offer.
To form a valid contract, the parties must exchange valuable consideration. Consideration can be money, services, covenants and other things of value. A contract will not be valid if there is no consideration, or if its consideration is illegal (for example, exchanging drugs or involving the commission of a crime).
If only one party gives valuable consideration the arrangement is a gift, not a contract. Since a gift does not create a contract, there is no legal remedy for a party who believes they have entitlement to a gift. For example, if parties agree to exchange an orange for one dollar, they have exchanged valuable consideration because each party gave and received value. However, if one party simply offered another an orange to the other in exchange for nothing, the party that should have received an orange has no legal right to the orange because the offer of an orange was a gift.
Each party must be of “sound mind” to understand the elements of the contract, otherwise the court may not enforce it. Examples of individuals who cannot “competently” enter into contracts include minors or individuals under the influence of alcohol or drugs.
TYPES OF BUSINESS AGREEMENTS
Governing Documents (Bylaws, Operating Agreements and Partnership Agreements)
Depending on your business’s structure, you will either have an operating agreement (for an LLC), bylaws (for a Corporation) or a partnership agreement (for an LLP, LP or Partnership). This agreement is the most important document between the owners of a business. Florida courts defer to, and are very shy to veer from, the terms of such agreements. Operating agreements, bylaws and partnership agreements identify the relationship of the owners to the company and to each other, how decisions are made, how the investments into the company are structured, and ultimately how the owners of the company participate in the economics of the company. Further, they will identify the voting power of those in the company and decision-making power of the officers. Ultimately, because Florida courts rely heavily on these agreements in a dissolution, it is important to a) ensure your company has written governing documents and b) carefully draft the governing documents with current and future considerations in mind.
In addition to Bylaws, many corporations utilize shareholder agreements to define the distribution and nature of the shares in a corporation. For example, the agreement will provide definitions of distinct types of shares in a company and whether some shares give the shareholder broader rights (preferred shares) than others (common stock). Preferred shares can grant shareholders more voting power and entitlement to profits or dividends.
Bill of Sale
A bill of sale serves two functions. First, the bill of sale transfers ownership of property. Also, the bill of sale acts as evidence of the contract between the buyer and the seller.
A purchase order is different from a bill of sale in that it binds the buyer to purchase a good, or quantity of goods, at a certain price point. Further, the purchase order specifies payment terms and the delivery date.
A security agreement guarantees an asset as collateral to secure credit. If the debtor defaults on the loan it surrenders the asset to the creditor.
Service agreements are common in transactions where one party provides a service to another for monetary compensation. The service agreement usually has two parts: the terms and conditions, and the scope of work. The terms and conditions outline the ancillary stipulations of the parties (e.g., intellectual property ownership, non-disclosure, non-solicitation, indemnification, choice of law, etc.). The statement of work may outline the monetary compensation, the timeline for payment, the type of services provided, the timeframe to render the services, etc.
It is important to carefully document the employment terms of company employees. Employers should always specifically define the following aspects of the employment relationship: compensation structure, benefits, duration of employment, grounds for termination, roles and responsibilities. Having specifically defined grounds for termination will help your business avoid suit.
Indemnity agreements appear in many types of business agreements. These provisions are agreements between the parties (or from one party to another) to hold the other party harmless in case damages occur as a result of one party’s performance, or nonperformance, of the agreement. Indemnity provisions are invaluable because they protect parties from suits which may arise in connection with the agreement. Oftentimes, parties can even agree to indemnify one another for any attorneys’ fees which are associated with the one party enforcing the contract.
If you are looking for legal assistance with your internal or external business agreements, or if you would like to speak with an experienced Florida business lawyer, contact a member of our team for next steps.
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