All small business owners should realize the importance of contracts, since they are part of everyday business, whether it’s the tiny print at the bottom of a bill or an agreement to buy office equipment. Depending on how complex the deal is, contracts with customers may be letter agreements or much larger documents.
The key thing to keep in mind is that one side is going to be held accountable if something goes wrong. Parties to a contract usually try to pass this liability off as much as possible.
Aside from being careful with the transaction, making sure customers are satisfied and carrying adequate insurance, the right disclaimers in a contract can keep small business owners out of court if certain things go wrong.
There are two protections that may be included in contracts:
One time-honored way of reducing your exposure is by using disclaimers, which lists things the provider is not responsible for. For example, many companies disclaim the accuracy of links on their Web sites.
A disclaimer basically states that one party is happy to do business with another, but cannot guarantee that nothing will go wrong.
2. “Hold-Harmless” Provisions:
Disclaimers and hold-harmless provisions are similar, but where a disclaimer lays out the negatives of what can happen, a hold-harmless clause sets out the positives.
This is an example of what a provision might sound like: “Although we have used our best professional efforts to deliver a complete and accurate report, you agree to indemnify us and hold us harmless for any loss, damage or liability (including reasonable attorney’s fees) to either yourself or a third party, which may be based on using the information contained in the report.”
This is different from a disclaimer in that the user positively assumes the risk.The “indemnity” part shifts financial responsibility to the user if the provider gets sued.
These are some of the items that might be included in a contract:
- What the protection extends to (such as damage or monetary losses).
- Whether the protection extends to others (beyond the customer) who rely on the information.
- Mistakes or omissions that are specifically not guaranteed.
- Positive actions for the customer to take (for example, check local laws with an attorney to determine their impact on the report.)
Disclaimers and hold-harmless provisions are part of the larger picture of risk management. While working to make your Maine-based small business the best it can be, get advice from Filler & Associates to consider what could go wrong. To help keep your company out of the courthouse, do your best to prevent problems and cover your bases as completely as possible.