Why can’t I just use a form contract?

Our era is one in which legal forms proliferate and many entrepreneurs are tempted to use them without much thought given to customizing them for the facts of their deal.

This is a huge mistake.

Contract and commercial law is highly complicated and does not lend itself to thoughtless application. If it were only a matter of filling in the names, for example, on a partnership agreement, then anyone starting a business could go to a stationery store (the old way) or go to a forms download site (the new), buy a canned partnership agreement, fill in the names, and be done with it. This is normally an unwise way to form a company. Such a boilerplate form may have nothing to do with the nature of the business being set up by the parties. It may have language in it that has no bearing on their deal and that will only confuse them and everyone else concerning what was intended by their deal. Worse, it will not expressly set forth the nature of their deal to make clear what they intend in their contract. Such a contract is an open invitation to litigation should anything go wrong in the deal between such parties. Perhaps tens or even hundreds of thousands of dollars will be spent hashing and re-hashing ad nauseam what they intended when they “agreed” to badly-worded boilerplate. If you have ever had the misfortune to suffer this fate, you will never again resort to such corner-cutting in documenting the affairs of your startup business or small business.

Can entrepreneurs get away with this in some cases? Of course, to some degree they often can. They need a simple promissory note, and the generic one fits their needs without too many risks of getting legally blind-sided in a simple transaction. They need a canned nda for their employees and they have a form they had used in a prior company – the type of form that has remained pretty constant over many years of use. This can work for the entrepreneur and, even when there are potential technical problems with the documents they are using, the problems may never arise in their particular situations.

For every case where entrepreneurs either can or do get away with it, though, there are all too many situations in which their attempts to do so proves ill-advised.

Bad business lawyers are lawyers that simply take forms and switch the names without giving thought to the nature of the deal before them. Bad as this may be, at least such lawyers have a modicum of legal education and experience to be able to spot some of the legal issues and some of the potential traps.

The same cannot be said for an entrepreneur trying to do the same thing but without the benefit of a legal education or legal training. This then is the worst of all cases. Don’t put yourself in this situation.

The issue gets confused when the entrepreneur will have had significant exposure to certain types of legal documentation, as for example in the case of one who managed the contracts of a large company in an executive capacity while working under the guidance of skilled lawyers. In such cases, someone who has had a lot of practical experience with a particular class of contracts is often far more aware of their ins and outs than are non-specialist lawyers who have not dealt much with such contracts.

This is true as well of the seasoned entrepreneur who has developed such a strong working knowledge of business deals as to be able to run rings around certainly any green business lawyer who attempts to work on such deals.

While all this is true, it simply means that law has a practical side as well as a theoretical one, and any smart person who has worked through complex legal deals often enough will come away from that experience with some excellent skills applicable to such deals. Serial entrepreneurs, contract managers, and others with like experience fit this mold.

This only confirms, however, why it is ill-advised for an entrepreneur to try to do business by using legal forms unthinkingly. The seasoned entrepreneur, the skilled contract manager, etc. may not be business lawyers but do have the vast experience to be able to think their way carefully through a complex contract. Even then, such persons will attest that they ultimately need their deals reviewed by a skilled business attorney. Though they may be able to drive a deal more efficiently owing to their experience, they themselves know this is no substitute for using the services of a lawyer who is an expert in their field.

The operative word is “think.” A good business lawyer will think carefully about any given deal and will customize any contract for the commercial situation at hand. A seasoned entrepreneur will do the same within the limits of a layman’s knowledge in a technical field.

Use of boilerplate forms without the requisite training, experience, and education does not give an entrepreneur any basis for thinking through a deal to spot the issues and potential trouble spots. Don’t use boilerplate forms mindlessly. In the end, it may cost you dearly.