What Can a Well Drafted Contract Do For Your Company?

A well drafted contract can do many great things for your company and your business deals.  Overall, a well drafted contract can save your company a lot of headaches, time, and money.  Below is a quick summary of my favorite benefits:

1.  Clarify the Deal Terms

First, a well drafted contract can clarify the deal terms between the parties.

Who is specifically going to do what?

How much money is going to exchange hands?

How are you going to get paid? Upfront? In installments? Monthly? When work is complete?

What is the time frame for the work?

Who is going to own what?

How is risk going to be distributed?

Nailing down the specifics within the four corners of the document will add clarity to the entire deal.  When disagreements arise over what everyone agreed to do, you can refer back to the contract terms.

A well drafted contract will tell you the answer.

2.  Clarify and Transfer Ownership of Intellectual Property

Of course, as an intellectual property lawyer, this one is my favorite.  A well drafted contract will specify who owns any intellectual property rights that are created in the course of the deal.

For companies who hire contractors to create logos, websites, or software for the company, it is critical to understand the following counter-intuitive concept.  Under the copyright statute, if you don’t have a written assignment of copyrights from the contractor who created the work:

YOU DON’T OWN THE COPYRIGHT EVEN IF YOU PAID FOR THE CREATION OF THE WORK!

Many companies without a well drafted contract are horrified to find out that they don’t own the intellectual property rights to their company’s key branding, website, or even the software product that they paid developers to create and are peddling.

Moreover, of critical importance to software developers:

If you are developing software for a company under a broad contractor’s agreement that gives away ownership of all intellectual property rights, you may not be able to legally resuse the software that you brought to the deal and incorporated into the client’s software.  The whole kit and caboodle will belong to your client.

It is critical to have a carve out in the contract for your developer’s tools and software if you want to reuse and retain the IP rights to your original software.

Software developers need to make sure they understand the implications of what they are signing and giving away. A company who gives you a contract to sign will be giving you a contract that is well drafted to only account for their interests.  It will usually be slanted horrifically in their favor.  These terms, however, are usually negotiable and you can get a fairer deal.

A well drafted contract will specify and clarify who owns what intellectual property rights.

3.  Limit Liability

After doing litigation for over a decade, limiting liability is also one of my favorite reasons to have a well drafted contract.  Sadly, it is often neglected in contracts drafted by non-lawyer entrepreneurs.

It is hard to know what you don’t know.

Liability hidden in statutes and the common law is like an iceberg.  If you don’t know it is there, you may hit it and your startup will go under like the Titanic.  Lawyers went to law school to know how to spot liability icebergs.

A well drafted contract can greatly limit a company’s liability in the following ways:

• by limiting statutory warranties that apply whether you know they do or not.  Such warranties can be excluded with very specific legal language and can save your company huge headaches and potential damages, especially if you are creating software or a dangerous product.
• by excluding crazy types of damages that are available under statues and common law.  Broad consequential damages and lost profits can be limited with very specific language in a well drafted contract.
• by limiting the total amount of damages available to the other party.  If you preformed the work for a specific fee, it is possible to limit the amount of potential damages in the contract to the amount you have been paid. Without limiting liability in the contract, a little deal may end up costing you far more than you had ever imagined.

You don’t want the potential liability to outweigh the benefit of the bargain.

A well drafted contract can limit your potential liability and dramatically help minimize your risk.

There are many other reasons to use a well drafted contract for your business but overall they can save you a lot of money.

Jill Hubbard Bowman is an intellectual property lawyer in Austin, Texas.  She can be reached at hubbardbowman [at] me.com