Professional legal due diligence of the contract: protection and certainty

When do you need legal expertise? In cases where you are entering into a contractual legal relationship, such expertise is a necessary step. Of course, you can use a contract found online, a template from a "friend who's a lawyer," or agree to the terms of the other party. However, you'll agree that involving a qualified attorney in the contractual process will help you avoid risks, such as:

• Being deceived by an unscrupulous counterparty. For instance, the counterparty may include false information in the contract or take on obligations they cannot fulfill.

Our client wanted to purchase equipment from one of the suppliers. Upon scrutinizing the counterparty, we uncovered several legal cases in which other clients had lodged complaints against the counterparty for failing to deliver goods after receiving an advance payment. Consequently, we decided to search for a new supplier, likely saving a substantial amount of money and time. In such scenarios, a legal review of the supply contract ensures the protection of interests and the avoidance of potential legal disputes.

• Unfavorable tax implications. Entering into a contract typically involves financial transactions between parties. Therefore, it is vital to accurately determine the tax implications.

In the case of buying or selling shares in an LLC's authorized capital at a price higher than the nominal value, the difference will be subject to personal income tax.

• Securing a contract in the client's best interests. One of the most frequent errors made by newcomers is readily accepting contracts presented by counterparts, where clients bear all the obligations while counterparts enjoy exclusive rights, often referred to as one-sided contracts.

For instance, in a service agreement, if the service provider assumes only obligations, and the client, apart from the payment obligation, has no further responsibilities and possesses considerably more rights compared to the service provider.

• Invalidation of contracts. When parties enter into a contract that doesn't comply with legal requirements, such a contract may be deemed invalid.

For instance, when entering into a real estate lease agreement for a term exceeding three years, notarization of such a contract is necessary; otherwise, it may be invalidated.

• Drafting a contract that proves impossible to fulfill. Еechnical errors, deliberate actions, or specific clauses within the agreement can result in significant challenges.

To steer clear of these risks, it is essential to have legal support and conduct a thorough legal contract examination. In other words, whenever you are in the process of entering into a contract, seeking the guidance of a competent attorney is highly recommended.

You may also like: How to Specify the Transfer of Intellectual Property Rights to Code in a Software Development Contract?

How does a lawyer review a contract?

The process of conducting a legal analysis on a contract involves a methodical sequence of steps aimed at thoroughly examining and assessing the transaction. Throughout this procedure, various aspects come into play, including legal terms, adherence to relevant laws, and the identification of potential risks. Let's walk through the stages of how a legal contract analysis unfolds:

Identifying the contract terms that are of utmost importance to the client and then negotiating all other terms accordingly. We always prioritize open communication with the client for each contract they intend to enter into. This is because some crucial aspects may only become evident after a comprehensive discussion with them.

For example, consider a client in the IT sector seeking to establish an agreement with an individual entrepreneur for service provision. Initially, the client's focus may center on key terms like service costs, technical specifications, and payment procedures. However, we also ensure the client's attention is drawn to additional considerations. We supplement the contract with relevant provisions pertaining to intellectual property and confidentiality. We also introduce necessary responsibilities for the service provider and establish mechanisms to guarantee the quality and timely delivery of services.

Reviewing the Counterparty. It's important to thoroughly assess the risk associated with your counterparty.

Once, a substantial international company, a counterpart of our client, considered terminating their collaboration. This decision was prompted by information uncovered via a Ukrainian legal entity search and verification service (which we won't name) that revealed the existence of a court ruling in a criminal case.

As it turned out, there was a criminal case initiated against individuals connected to one of our client's customers. However, this case had no bearing on our client whatsoever. Nevertheless, we faced the challenging task of explaining these circumstances to our client's foreign counterparts, which took a considerable amount of time and effort.

Analyzing terms or proposals from the other party.

Negotiating contract terms. This phase can be one of the most intricate as it involves a negotiation process where we advocate for our client's interests while the counterparty typically has their own legal team defending their position. Legal contract analysis helps identify potential contentious issues that need resolution. Ultimately, this process results in a compromise, which is then documented in the contract.

Editing and finalizing contract terms. Following all negotiations, our legal team prepares the final contract draft for signing and ensures a smooth signing process.

The culmination of the legal review process is the client's signature on the contract.

The consequences of entering into a contract without legal assistance

Certainly, you can enter into a contract without a lawyer, but you expose yourself to the following risks:

Higher costs in the long run. If your interests are not adequately considered, or if you find yourself needing legal assistance due to issues arising from a contract drafted without a lawyer, the expenses for professional legal support, court fees, and the time spent in multiple legal proceedings can greatly surpass the costs of having a lawyer help you draft the contract.

Time-consuming. Negotiating contracts with counterparts, their lawyers, accountants, project managers, and all decision-makers can consume a significant amount of your time. Time is valuable, and delegating this task to professionals can save you precious hours. The cost of legal contract analysis is reasonable, and the service can help you save valuable time.

Legal vulnerability. If you are not a legal expert, you may not be aware of the legal intricacies involved in contract drafting. This lack of knowledge can be exploited by counterparts and their lawyers, leading to unfavorable contract terms that you are obligated to fulfill or for which you may incur penalties.

These reasons should be sufficient to dissuade you from investing your time, energy, and resources in handling contracts without professional guidance. Entrust your contracts to experts. Our company's lawyers possess exceptional expertise in contract law and are ready to assist you in drafting or analyzing contracts of any complexity.

To inquire about the cost of contract analysis or to engage the services of our lawyers, you can fill out the form on our website or directly contact our team. We are eager to provide you with professional legal support tailored to your needs.