Airtight Business Contracts Explained: How to Protect Your Company from Costly Disputes

Why So Many Business Disputes Trace Back to the Contract

According to Richard Corey, most business conflicts can be traced directly to poorly written or ambiguous contracts. Every successful business relationship begins with a solid foundation — and that foundation is the contract. When the terms are unclear or open to interpretation, it leaves room for misunderstanding and, ultimately, litigation.

He explains that most disputes arise either because a company is making money or because it’s not — and the underlying contract determines how profits, responsibilities, and decision-making are handled. That’s why agreements such as operating, shareholder, or partnership contracts must clearly outline each party’s rights and obligations.

What Every Entrepreneur Should Include Before Signing a Contract

There’s no universal “standard” agreement that works for every business. Richard emphasizes the importance of tailoring each contract to fit the company’s unique structure and goals.

For example, if two partners have equal voting rights but disagree on a major decision, a deadlock clause should define how disputes will be resolved. Without it, business operations can stall.

He also warns that contracts should address key issues such as:

• Duties of loyalty and accountability

• Who handles accounting and financial management

• How capital contributions and shortfalls are resolved

Leaving these details out, Corey says, opens the door to legal uncertainty and unnecessary risk.

The Risks of Using Recycled or “Template” Agreements

Many entrepreneurs rely on online templates, assuming they’re “standard.” But Corey cautions that there’s no such thing. These recycled forms often contain vague or overly broad clauses that create ambiguity — and ambiguity invites legal trouble.

If two parties interpret the same clause differently, the disagreement can escalate into costly litigation. The best contracts are detailed and specific, leaving no room for alternate interpretations.

What Makes a Contract Hold Up in Court

Richard Corey explains that knowing whether an agreement would stand up under courtroom scrutiny comes down to experience and understanding case law. He gives an example of a non-compete clause that restricts someone from working anywhere in an entire state — an overreach that likely wouldn’t hold up in court.

The key, he says, is ensuring each clause is reasonable and relevant to the business at hand. Overly broad or unfair terms can invalidate an otherwise strong contract.

How to Negotiate Without Damaging Relationships

When it comes to negotiations, Corey advises business owners not to act as their own mouthpiece. Allowing an attorney to handle the “tough talk” helps preserve professional relationships.

An attorney can serve as the “bad cop,” absorbing the friction of negotiations so both parties can maintain a positive working dynamic. “Let your lawyer be the bad guy,” Corey says. “That’s what you pay them for.”

Choosing the Right Dispute Resolution Clause

Dispute resolution provisions — such as mediation or arbitration — sound appealing in theory, but Corey warns they must be written carefully.

For example, a clause requiring mediation before any legal action might seem fair, but if written too broadly, it could force mediation after every minor disagreement. Similarly, arbitration can be risky because it offers limited appeal options, even when an arbitrator’s ruling contradicts the law.

Business owners should ensure these clauses are clearly defined and strategically chosen based on their company’s needs.

Why Family or Friend Partnerships Need Contracts the Most

Many founders start businesses with friends or family on a handshake agreement. Richard Corey stresses that this is one of the biggest mistakes entrepreneurs make.

In fact, when family and personal relationships are involved, a written contract is even more important. It helps separate emotion from business and prevents misunderstandings that could harm both the company and the relationship.

Common Drafting Mistakes That Lead to Litigation

From his litigation experience, Corey notes that most contract disputes come from sloppy drafting. Something as simple as referencing the wrong clause or subsection can lead to confusion worth millions.

These small errors often show up when companies grow and take on more complex transactions, such as mergers or acquisitions. Precision in contract language isn’t just a legal concern — it’s a financial safeguard.

Clauses That Can Force You to Sell Your Business

Corey highlights lesser-known provisions like “tag-along” and “drag-along” clauses. These clauses can force minority owners to sell their shares when another party sells theirs — even if they disagree on the price.

Without fully understanding these terms, business owners may find themselves legally obligated to sell their ownership stake against their wishes.

The Smartest Adjustment for Stronger Contracts

When asked what single change can make a company’s contracts stronger today, Richard Corey says there’s no one-size-fits-all answer. Every agreement must be built around the company’s strategic goals and risk profile.

Whether a business is scaling, raising capital, or bringing in investors, the contract must reflect its long-term vision. He warns that overlooking these details could mean losing control of the company altogether — especially when venture capital investors request board seats.

Final Takeaway

A well-drafted contract isn’t just a legal document — it’s a business strategy. As Richard Corey emphasizes, the time and cost of having an attorney review agreements upfront can save entrepreneurs from far greater losses later on.

To learn more about Attorney Richard Corey and how his firm helps businesses protect their interests, visit rcenterpriselaw.com.