A handshake deal often feels like a simple way to make an agreement so things can move quickly. Two small business owners may see that it benefits them to work together, and they will just have a verbal agreement regarding what this looks like.
As much as this can be quick and easy, however, there are some significant problems with using handshake deals instead of written contracts. Let’s look at two of the major issues below, demonstrating why it is worth taking the time to write a contract.
The potential for misunderstandings
For one thing, even if the terms seem clear, there could be a misunderstanding. Perhaps one business owner believes that the contract will be fulfilled by the end of the week, while the other believes they have until the end of the month. Maybe there is confusion about financial compensation, with one business owner believing they have a far smaller financial obligation than the other.
When these critical details are officially written down in a contract that both parties sign, it makes things clear. But even a simple misunderstanding could lead to an alleged contract breach and a dispute between the two parties.
Lack of proof
That is when the second issue arises. With a handshake deal, there is no proof of what was really agreed to. When both parties tell very different stories about what they believed the agreement entailed, it can be difficult to find a resolution. There is no record of the actual terms in the way that there would be with a written contract.
For these reasons and more, drafting official contracts is very important. Business owners who are going through this process need to know what legal steps to take.