by Nicole Martucci | Launching or running a business in today’s complex legal and highly regulated marketplace is fraught with many tricks and treats.
Following the specific regulations of your industry, facing and addressing disputes and other countless challenges, and positioning your company for growth and success often take a frightful amount of grit and determination.
Below are five of the common myths we encounter when assisting our small- to medium-sized business clients.
1. Contracts must in be writing to be enforceable.
False. Oral contracts and agreements can be binding and enforceable. Intention to create a contract can be proven through conduct of the parties, even if a “formal” contract hasn’t been signed. To have an enforceable oral agreement, you must be able to show that offer, acceptance and consideration (the bargained-for exchange) occurred. In certain cases, however, an agreement is not valid unless it is in writing. For example, in Rhode Island the “Statute of Frauds” requires all contracts regarding the sale of real estate, any agreement to pay the debt of another, or any contract that cannot be performed within one year, to be in writing in order to be enforceable. It is advisable, of course, to have all contracts put in writing and signed by the parties in order to avoid any doubt.
2. Parties to a written contract are always bound to the terms contained in the contract.
False. While it is true that written contracts will usually be enforced as written, this is not true in certain instances. If the terms of the contract violate the law or require the law to be broken in some way, they cannot be enforced. Another way contract terms can be invalidated is if an unforeseen event undermines the principal purpose for entering into the contract, known in legal language as “frustration of purpose”. Contracts formed under duress are also unenforceable. If you are unsure whether the terms of your contract can be enforced, or have questions about how to enforce them, it is important to seek legal advice.
3. Forming a corporation or LLC will always protect my personal assets.
False. While the formation of a corporation, LLC or other business entity provides a shield to protect your personal assets from company creditors or debts, that is not without exception. That protection can be lost in a number of ways, for example, if you comingle personal assets and company assets. Separation is key to benefit from the protection of the LLC or other entity formation. Failure to comply with state business laws or acting criminally or negligently can also expose you to personal liability. If the owner of a business entity is sued individually for any wrongdoing, personal assets may also be at risk. For best practices to ensure your personal assets are protected, consult with an attorney.
4. If I win a lawsuit, the other side has to pay my legal bills.
False. In Rhode Island, everyone is responsible for paying their own legal fees and expenses, even if they win. There are limited exceptions to this rule, for example, if a contract specifically requires the payment of legal fees or if the lawsuit has been pursed in bad faith. As a general rule of thumb, however, parties pay their own lawyers regardless of the outcome.
5. I only need an attorney when things go wrong.
False. As evidenced by the falsehoods here, being proactive and selecting a skilled and knowledgeable attorney can set your business up for success and help at every stage along the way. You shouldn’t wait until you’re facing litigation to have an experienced lawyer advocating for your best interests. In fact, business attorneys can advise you of the best ways to protect yourself and your business from the threat of litigation and ultimately, limit your exposure to risk.
If you are nodding your head about one of these business myths and want to learn more about how to protect yourself and your company, reach out to Nicole Martucci at Duffy & Sweeney.