Before you sign that contract …

I recently met with some potential new clients, and we had a conversation which I’ve had over and over again with businesses considering entering the US. I’ve decided to cover some of those issues here in what will be a somewhat sporadic series on the legal aspects of doing business in the US.

The first thing non-US business people need to know is that US contract law is a lot more flexible than in many other countries – which can be both good and bad. It’s good in the sense that if you can dream up a transaction you can probably do it, because the law tends to give businesses a lot of latitude in setting the terms of their contract with one another. If you’ve come up with a novel concept, or if your compensation scheme is a little odd, chances are you can make it work in the US, even if you can’t make it work in your home country. This is particularly true of employment and distribution contracts, which tend to be heavily regulated outside the US but which are considerably more flexible within.

The down side of this flexibility is twofold. First of all, it means that contracts are longer, because many of the elements of a contract which would be statutory in most countries are subject to negotiation, meaning they should be set forth in a contract. The second problem, and often the biggest problem for non-US businesspeople, is that a contract can and often is structured to be quite unfair to one party. As a negotiating party, this means that you have to read that contract carefully, because the bad decisions which might not be permitted under your own country’s law are permitted in the US. I’ve worked with a number of clients to try to extract them from onerous contract terms after it was too late. It’s unfortunate, but it’s also the price you pay for the flexibility of the US legal system.

image from wikipedia’s article on contract law