In this episode of Coffee with Carl, attorney Carl Zoellner explains the differences between business contracts you use among your entities versus what you use with a third party.

 

 

A common question I receive from Platinum clients who use the free legal forms in our Platinum portal involves the differences between types of business contracts. When drawing up contracts, there are different considerations and requisite language depending on whether the contract is internal or external.

Internal Business Contracts

An internal contract is one that’s basically between you and you (i.e., between two entities in your business structure). When using template agreements for internal use in your structure, these agreements will often be simplified. Internal contracts don’t require all the legal protections that are needed when working with outside parties. Put simply: you won’t defraud you. You won’t sue you. So internal agreements and contracts don’t necessarily need to have those kinds of clauses.

External Business Contracts

This is quite different than external contracts, or contracts with third parties. These are agreements between your entity and some outside party (a contractor, for instance), so you need to make sure that the contract protects you and your business from all sides. We are no longer in the days of handshake agreements. Although you may operate with that level of integrity, not everyone does.

All this being said, there are still two important things to note for business contracts regardless of whether they’re internal or external. Your contracts and business dealings, whether internal or external, must be:

  1. Formalized
  2. Arm’s-length transactions

Your business dealings, even amongst entities within your structure, must be formalized, documented, and held at arm’s length. This ensures they’re both legally enforceable and hold up under scrutiny if you were sued, protecting your corporate veil.

 

Watch as Carl sheds light on the differences between internal and external business documents.

Resources mentioned in this video:
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