At my firm, it’s safe to say that small deals happen all the time. By “small,” I mean deals totaling less than $1 million. Whether it’s fundraising for a startup, a vendor agreement between two big companies, a licensing agreement, or the purchase or sale of a business, a large number of small transactions and contracts are in process at any given moment. My firm often meets with prospective clients who have already drawn up their agreement using a fill-in-the-blank template. Many of these forms are available on the Internet, which truly is an invaluable source of legal information if you know how and where to look.
Sometimes people pay for forms through a service, and sometimes they find templates that are available for free; either way, there is almost always something missing, contradictory, or wrong about the form, the way it has been completed, or about what the parties thought they agreed to and what the form says they agreed to. In fact, it seems that most of the time, these forms actually add risk to the transaction. People rely on online forms to avoid calling a lawyer, but it then blows up in their face, leaving them with a bigger legal headache and an even bigger bill.
Here are 5 rules to consider as you decide whether or not a form will work for you in a specific legal situation:
- The simpler, the better. The less you need to fill in, the more likely it is that you can find a template that would work for you. A great example is a nondisclosure agreement, or an NDA, between two parties. An NDA is a promise not to reveal information exchanged between parties. You can find simple one-page NDAs with blanks only for the names of the parties at the top and signatures at the bottom.
- Specific and specialized is better than nationwide and generalized. My wife and I rented out our former home for a while after we moved out. Our state’s rental landlord association offered forms for sale, and I was happy to pay them a fee to insert my information into their pre-fabricated agreements. First, the forms complied with the first rule on this list: I was simply inserting basic facts like the address, the rental term, the rental amount, the deposit fee, et cetera. Second, the association made forms for Oregon, and only Oregon, landlords. This association was led by people who knew the market, kept up with changes in law, and existed to help people like me rent property.
- If you ask “what does this mean?” more than 3 times, throw the form away. I don’t just mean the legalese—it’s obviously important to understand that—but if there are 3 moments during the process of filling out the form that cause you to scratch your head, it’s probably time to call a lawyer or find a different form. The more chances there are for someone to fill in a section in error, the more opportunities there are for something to go wrong later.
- Ask yourself if you could write it better yourself. Consider whether or not it would be sufficient to write down the five w’s—who, what, where, when, why—and then add a sixth: “what happens if the above doesn’t happen?” If all relevant parties read and sign that document, it’s certainly no worse than a form, and it may be significantly better. The simple act of writing down the agreement might prompt you to add things the form would not have covered.
- Lawyers don’t bite, but they bill per bark. To give you a sense of what we’re talking about, I always try to keep legal costs under 1 percent of the dollar value of the deal in question. Often the final bill is less than that. By contrast, business and commercial litigators charge by the hour, and the fight is never simple or short. Costs aside, being in the middle of a fight is extremely unpleasant. It makes my bill look absurdly reasonable in hindsight. If you think you’re saving hundreds of dollars by using a form, you’re probably right—as long as you ignore the potential for a bill resulting from a subsequent misunderstanding, fight, or lawsuit.
Find related information on Avvo’s Business Contracts page
You may also be interested in trying Avvo’s Advisor feature, which allows you to run your form past a lawyer, or dive into the Q&As to find more information.
Download the Avvo Advisor App and, for a limited time only, use promo code Nakedlaw to get a free Advisor session.
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