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Denver Business & Commercial Law Blog

Contract formation is the backbone of many Denver businesses

Contracts often form the backbone of a successful business, and many people in Denver rely on contracts every day to keep their business viable. The exchange of money, goods and services sometimes requires some intense negotiations, but the end goal is to form a legally binding agreement.

It is important to understand what must be done to form a contract. To form a contract there needs to be an offer, consideration, acceptance and mutuality. Let us break down these topics, to better understand contract formation.

"Consideration" is essential to a legally binding contract

Businesses enter into contracts every day. Some contracts involve goods, while others involve services. Contracts are not limited to the manufacturing industry, sales industry or any other industry for that matter. Any business in Denver will likely find itself one day needing to draft a contract. Therefore, it is important to have a basic understanding of how a contract is formed.

To enter into a contract that is legally enforceable, there must be an offer, consideration and acceptance. Consideration constitutes what is being exchanged in the contract -- that is, what it is of value that each party receiving from the agreement. Without consideration, the contract may not be binding.

The basics of contract formation

People in Denver's business world enter into contracts every day. Some of these may be standard contracts, such as sale contracts or employment contracts. However, even a standard contract can involve a lot of negotiating before the parties come to an agreement. It is important, then, to have a basic understanding of how contracts are formed.

In general, a contract is formed when several elements are met. First, there is an offer made by one party to the contract that is accepted by the other party to the contract. Second, there must be consideration, that is, an exchange of one product or service for something else of value, such as money. When these elements are properly met, this means that both sides to the contract are in an agreement about what is being offered and what is being exchanged.

Why would a Denver business want to register its name?

What is a business without a name? Some of the biggest business names world-wide conjure up products or services that are, "household names." In fact, it could be said that name recognition is a cornerstone of a successful business enterprise in Colorado. Therefore, it is important to choose a name that is unique.

After doing market research and with a little creativity, business owners can decide on a name that fits their new enterprise to a tee. However, once a name has been chosen, business owners may need to register it with certain agencies, to protect it.

Merger negotiations do not always result in a final agreement

Sometimes, two small business owners in Colorado decide to combine their businesses in a way that creates a single business entity. This is known as a merger, and it can be a way for two small businesses to grow their operations. However, there is much negotiating that will take place as the two businesses decide how best to form the new entity. It is hoped that these negotiations will result in a final merger agreement. Unfortunately, these negotiations can fail. When this happens, a satisfactory merger agreement is never reached and the deal falls through.

What are some reasons why two small businesses wishing to execute a merger agreement would be unable to achieve this goal? It may be because each business has different intentions with regards to the merger. One business may view the merger as a strategic move to grow their business. But, another business may simply be looking for a way to bring more attention to its business operations. When business owners cannot see eye-to-eye, when it comes to why they are wishing to negotiate a merger agreement in the first place, the deal may fall through.

Is it wise to handle contract law matters alone?

These days, business agreements in Colorado are often cemented not just by a smile and a handshake, but in a written contract. This contract will (hopefully) address all the parties agree to. This will include who will do what, for whom and by when. A well-drafted contract will also address any contingencies that may arise. With so much at stake, it is important that a person is represented by an attorney during contract negotiations.

There are a variety of business contracts in which the parties to the contract could benefit from the assistance of an experienced attorney. Some examples of these contracts include business partnership agreements; contracts with vendors, suppliers, clients or customers; employment contracts; purchase and sale agreements and more.

What types of financing are available to small businesses?

As the old saying goes, "It takes money to make money." Many small businesses need financial resources to get their business off the ground. There are two general choices for funding a small business: debt and equity.

When a business takes on debt, it is essentially borrowing funds from a lender, which it will then need to pay back plus interest. When a business utilizes equity, this means it is obtaining funds by selling interest shares.

Succession plans can be a part of the business formation process

When a person in Denver sits down and makes plans to establish their own family business, the idea that they will eventually leave the business may not cross their mind. However, succession planning can be made part of the business formation process. Having a succession plan in place from the get-go can help ensure the family business is left in the hands of the right person.

A succession plan can see that the process of transferring the business from one owner to another owner runs smoothly. When it comes to family businesses, one must account for family dynamics. After all, family members have relationships with one another -- some good, and some bad -- meaning transferring the family business on to a relative can be an emotional affair. Moreover, many people find that having discussions with their loved ones about finances and death can be unpleasant and awkward. This may be why, according to one source, over 70 percent of family business are not passed on from the original owner to the next generation. A succession plan can help prevent this.

Buy-sell agreements can help partners expect the unexpected

When two people in Denver partner to start a business, it is often with the anticipation that the enterprise will be lucrative for years. However, no matter how well the partners work together or how successful their business, life has a way of throwing a curve ball.

For example, one partner could get a divorce, or one partner could end up filing for personal bankruptcy or one partner could unexpectedly pass away. These, and other life events, could have a major impact on the running and ownership of the business that, absent the proper protections, the partners may never have intended.

Are non-compete agreements legal in Colorado?

A non-compete agreement is a contract where an employee agrees that, if the employee leaves their job, they will not work in the same occupation for a different employer (usually a competitor) for a certain period of time. These agreements help employers protect their interests from competitors. However, are such agreements allowed under Colorado law?

Under Colorado Statutes, Section 8-2-113, it is against the law to try to force, threaten or intimidate an individual from pursuing a lawful occupation, wherever he or she chooses to do so. Therefore, per Colorado law, a non-compete agreement that restricts an individual's right to work for and be paid by another employer is void, with four exceptions.


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