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Should you settle for a handshake deal?

It is tempting to assume that a handshake deal is good enough, especially when you start entering into business with people you know and trust.

For instance, perhaps you started your own company three years ago. You made a lot of friends and really got connected in the community. You met other business owners with similar companies. Eventually, you started spending your free time with them, as well. You became friends.

When you had an idea for a collaboration between your company and another business owner, you pitched the idea casually. That owner loved it. You both spent four hours talking about the possibilities, what each company would need to invest and how big things were going to get. At the end of the meeting, you shook hands and said you’d start working together.

Is that enough?

It’s not that this handshake deal cannot ever work, but it really may not be enough. As long as you stay on good terms, the agreement holds up and you both enjoy working together. But what happens when things change?

For instance, what if you both agreed that you would put $100,000 into the new venture. When it comes time to put the money down, though, your partner says he only remembers pledging $10,000. He thinks the business is split equally, but the money certainly isn’t.

Remembering different versions

Whether your partner is telling the truth or not, remembering different versions of events is a big issue when people work together without a contract.

For example, one man hired another man to work with him. At the time of the hiring, the employer claims that the employee agreed not to look for another job for 24 months. Things went well for 12 months, but then the man got a better offer and took it.

The employer called him out on it, saying he had to stay per the terms of their handshake deal. However, the former employee said he only remembered agreeing to stay for 12 months.

It does not even matter who was right and who was wrong in this situation. Neither person could prove it because neither of them had signed a contract.

Moving forward

As you move forward with any new deal, you need to make sure you consider the legal side of that deal. Take the right steps to set yourself up for success and to protect your own business.

It can feel a bit awkward. Your friend may assume that your asking for a contract means you do not trust each other. But you need to push forward and explain that it is best in the long run — for both of you — if you know exactly where you stand.


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