Startups and other business ventures involve forming new business relationships—sometimes several at a time. In some ways, a business venture is like a pool party. Your business is the swimming pool, and the people you involve in your business—investors, business advisors, engineers, consultants, attorneys, and accountants, not to mention employees—are your guests.
For obvious reasons, most of us would not intentionally invite a shark to a pool party. But in the business world, sharks can be well-camouflaged. Here are some tips for shark-proofing your pool:
- Define each relationship clearly and in writing. Sharks thrive in murky waters, which they can exploit to sneak up on unwary prey. They also flourish in murky relationships—the ambiguity can be used as cover to make an unexpected, aggressive claim about the terms of your “agreement.”
- Don’t allow anyone to start working in your business until the contract is signed. While some contracts must be in writing to be valid, California law recognizes many unwritten contracts as well. These include the proverbial “handshake agreement,” where both parties discuss the terms verbally, agree, and shake hands. An unwritten contract can even be “implied by conduct”—i.e., inferred from the parties’ behavior without even an explicit handshake agreement. An implied agreement, which is murky almost by definition, is excellent shark habitat as I previously mentioned.
- Use shark repellent—include an attorneys’ fee clause in your written contract. Litigation—i.e., fighting out a contract dispute in court—is very, very expensive. The general rule is that each side must pay its own attorneys’ fees even if it wins. Well-funded sharks can use this rule to extort settlements from their victims. To deter this predatory behavior, include a clause in your agreement that requires the losing party to pay the winning party’s attorneys’ fees. This makes the calculus of extortion much less attractive to a potential shark. This shark repellent will likely save you from the lethal bite of a lurking shark, who will decide that there are easier prey to be found in another pool.
This is just a basic overview and is not legal advice specific to your situation. If you would like to speak with Jonathan about your startup or other business situation, please email him at email@example.com or call him at 925-217-3255.