The old saying – “the devil is in the details” definitely applies to Texas business agreements. This has certainly been my experience as a Texas Business attorney for over 37 years while representing clients – large and small. So many problems could easily have been avoided by addressing critical issues in advance. Below are just a few business agreement flash points to be considered.
1. Never Pull a Texas Business Agreement off the web or internet.
This can be disasterous for clients, and I see several cases a month which have devastating consequences. For starters, there is abundant misinformation on the web written by non-lawyers or practitioners with little to no experience in an attempt to capture business. If you are searching in this way for a Texas business contract via a template or LLC agreement, beware! The language needs to be specific and compliant with Texas law. You can give up your legal rights instantly and be aware that the contract is construed against the person who drafted it regardless of experience. Drafting a contract does not have to be expensive or a major undertaking. If you cut corners in Texas business contracts, you lose.
2. Business Contracts are transaction specific.
Not all contracts are equal. Specific issues, laws, and – critically – contract provisions apply to different agreements including building contracts, sales, real estate, employment, corporate, licensing, IP, etc. It is highly recommended that you consult with an attorney who has extensive experience in drafting the specific contract you require.
3. Toxic Provisions.
An experienced attorney can identify provisions which will impair your rights. Examples include the following:
- “As is” provisions – acknowledge that the buyer of a property takes the property in its current state whether the defects are obvious or not. Under Texas law it is almost impossible to get around this limitation. An example would be a crack in a new home foundation or older home. Even if this defect renders the home uninhabitable, it would be an expensive battle to hold the seller liable.
- Merger clause – This language is buried in the agreement and sometimes referred to as an “Entire Agreement” clause. What it does is restrict all of the representations made to the four corners of the agreement. This limits your ability to hold the other contracting party responsible for representations which never made it into the agreement, for example, additional deliverables or services to be rendered. Even if these statements are in an email or recorded, you cannot get them into the contract without extensive and expensive legal maneuvers.
- Arbitration clauses – These seem innocuous but eliminate your ability to file a lawsuit in a state or federal court. It requires that you file only in a private court with an arbitrator – or private judge. These provisions can be devastating and biased. They are not challengeable under state and federal law.
- Restriction of Damages – These provisions are horrific and limit your ability to recover damages even if the other party acted with gross negligence or intentionally. They are almost impossible to challenge effectively.
- Waiver of Class Actions and Jury Trials- These provisions prevent you from joining in an action with other parties who have been injured. They are designed to divide and conquer and make it difficult to prevail in a case even if there are hundred of other affected parties. You cannot join as a single group. Same deal for elimination of your fundamental right to a jury trial. It is gone.
- Employment Contracts – These are a special species of contracts which have unique requirements. Employers routinely put in provisions which illegally restrict competition. Contrary to popular belief, Texas Noncompete clauses are enforceable, but the language must be compliant with Texas law. Invariably, these provisions are unenforceable.
- IP agreements – These agreements often include unenforceable boilerplate which attempts to protect confidential information. Unfortunately, these provisions fail to incorporate key protections under a relatively new Texas law – the Texas Uniform Trade Secrets Act (TUTSA) which affords unique and powerful new protections for software, proprietary information, and even client and marketing data. Without an awareness of TUTSA, you cannot draft an effective agreement, in my opinion.
4. Corporate transactions – These are another species of contract construction. If you are seeking to create a Texas Entity, stay away from online generic services which do not offer the work product of an experienced Texas Business Lawyer. Whether you are forming an LLC, PLLC, S-Corp, C-Corp, LLP, or partnership – the drafting requirements are different and complex. If you cut corners, you will lose.
Critically, specialized contracts relating to Texas shareholders and members require precise language as it governs the rights and financial rewards/obligations between the parties. Shareholder Agreements (corporations) and Membership Agreement (LLC’s) define such basic rights as ownership shares, contributions, who gets paid first or last, voting rights, buy-sell, expulsion of partners, and rights of your spouse if you should die.
Bottom Line – Do not leave the drafting of critical Texas Business Agreements to chance, the web, or inexperience. You can lose big.
If you have a question about drafting or reviewing a Texas Business Agreement, give us a call for a complementary consultation.