This is part 1 of a 7 part series highlighting common legal missteps of small businesses.
Mistake #1: Oral Agreements.
Business owners often start off their enterprise with handshakes and oral promises. The failure to reduce your agreements to writing creates substantial risks. A thoughtfully crafted agreement protects you by, among other things, defining your rights and obligations, outlining payment terms, limiting your exposure to damages, and setting forth the governing law should a dispute arise.
Pursuant to New York law certain agreements are only valid if in writing; this is required by the “Statute of Frauds.” Specifically, these include: an agreement creating an interest in land; an agreement for the sale of goods over $500; an agreement that cannot be completed within one year; a promise to answer for the debt or default of another; and an agreement to enter into a New York Limited Liability Company (LLC) between parties, depending upon the parties’ negotiations.
The failure to abide by the Statute of Frauds renders the agreement voidable by the party to be charged. In other words, if you have an agreement with a vendor to purchase goods in excess of $500 and that vendor does not perform, the vendor can defend his nonperformance on the basis of the Statute of Frauds, leaving your business with no recourse. Putting your agreements in writing limits your risk and provides certainty in your business operations.
Moreover, a business owner who puts his agreements in writing will save valuable time and money by not having to endure litigation in order to prove what was said in an oral agreement. Unfortunately, this often results in the court substituting its interpretation of the facts for those of the parties.
If you are entertaining the idea of entering into an agreement or currently have an oral agreement, contact us for more information.
Moisan Legal P.C. is a boutique law firm focusing on representing entrepreneurs and businesses in a variety of legal issues. Matthew J. Moisan can be reached at 646.741.5222.