From vendor contracts to service agreements, contracts are essential to any business. But when was the last time you reviewed your existing contracts to ensure they’re still serving your company’s best interests? Below, our business lawyers explore why it’s so crucial to update a business contract, and offer guidelines for how often you should update your key agreements.
Can I Update a Business Contract?
Typically, the answer is yes. However, depending on the contract’s wording, you might be restricted—at least in terms of what can be updated. That’s why it’s key to get a lawyer’s input before you try to amend a business contract. Otherwise, you risk breaching the contract, and you could face financial, legal, or even reputational consequences.
Why Update a Business Contract?
There are various reasons why you should set aside time to review—and update—your key business contracts.
- Regulatory Changes: As rules and regulations evolve, you must consider how the changes impact your business contracts.
- Risk Exposure: It’s crucial to ensure that you’re not assuming more risk or legal responsibility than required. Revisiting business contracts at regular intervals helps to protect you from unnecessary exposure.
- Changing Priorities: As your business grows, your priorities change. Reviewing and updating your contracts ensures that the terms reflect your existing and anticipated future needs.
- Market Shifts: Changes in the marketplace, or global events, can affect any business contract. Contracts should be updated to reflect the impact on your company.
- Competitive Advantage: To stay competitive, you may need to revisit your business goals and priorities. Reviewing an existing contract, and updating its terms, could give you the freedom you need to expand your reach.
How Often Should Business Contracts Be Reviewed?
The short answer is at least annually. However, it’s often necessary to review contracts at least every six months.
What affects the frequency of your business contract renewals? Well, it all depends on the type of contract you’re dealing with, but typically, you should always review a contract if:
- There’s a new legal development
- You’re facing new compliance requirements
- A contract is due for renewal
- You’re dealing with unexpected commercial challenges
Not sure if it’s time for a contract review? The Gordon Law team can help you determine how often to update your contracts—and how to do so without penalty.
What Terms Should Be Updated?
It completely depends on the type of agreement you have, and what you’re hoping to achieve from the update. That said, there are certain terms which should generally always be reviewed at regular intervals.
- Service Scope: Goals and objectives are subject to change. It’s best to ensure that your contract reflects each party’s expectations to prevent disputes or delivery issues.
- Limitation of Liability: Depending on your insurance coverage each year, or your risk exposure, you might want to change your liability or warranty clauses.
- Data Protection and Privacy: Global privacy laws are constantly evolving. Your business contracts should reflect any changes to your data processing, sharing, or handling obligations.
- Payment Terms: As your financial priorities change, you might wish to change your payment terms e.g., frequency or method of payment.
- Renewal: Depending on your mid to long-term commercial goals, you may wish to change whether a contract can be automatically renewed, or whether it’s subject to a performance review first. You may also wish to update the termination criteria.
- Risks: Your agreement should reflect any changes in your exposure to risk or losses e.g. if there’s a market shift.
Which Types of Business Contracts Should Be Updated?
The short answer is all of them. However, the following six contracts must be updated regularly.
1. Terms of Service
Your service agreement, or terms of service, govern your relationship with your users. The terms are the “ground rules”—typically, if users don’t comply, you can terminate the agreement.
Given how important this contract is, you should review it at least annually. Consider updating your contract early, though, if:
- There are new laws or regulations affecting your operations. For example, consumers may be granted additional rights, or you may be required to take extra steps to secure personal data.
- The market changes. As consumers’ expectations shift, your agreement should reflect what the average consumer now expects from you, whether it’s greater transparency or more flexible payment terms.
- Your goals change. If, for example, you want to change your billing methods, you’re expanding into new markets, or you want to limit your risk exposure, then you may need to update your terms of service.
2. Privacy Policy
A privacy policy outlines how you collect, process, and use personal information, or personal data. If you engage in any marketing activities, a privacy policy is crucial. But how often should you update it?
Well, as with terms of service, you should review and update your privacy policy annually. However, you should update your privacy policy urgently if:
- Laws change and you now have additional obligations
- There are changes to the software or marketing stacks you use
- You’re working with new vendors or third parties who might access personal data
- You wish to change how you use, collect, share, or process data
It’s not uncommon for businesses to “copy and paste” agreements such as privacy policies from template websites. However, it’s vital that your agreement truly reflects how you process and handle data. Otherwise, you could face significant legal consequences for privacy violations.
3. Vendor Contract
A vendor contract governs your business relationship with a vendor, or service provider. It’s good practice to include clauses in the contract stating:
- How often the agreement should be reviewed; and
- How either party can propose changes to the agreement.
As a general guide, vendor contracts should be reviewed at least once or twice a year. And they should be updated whenever:
- There’s a significant change in your operations
- You’re business goals shift
- The applicable law changes
Unsure if you need to update your vendor contracts? The Gordon Law team can help.
4. Service Agreement
A service agreement details what services will be provided by one party to another. These should always be reviewed at least once a year, but it’s good practice to review them more frequently. Consider updating your service agreements if:
- You want to include more frequent “milestones” or review dates
- It’s necessary to change the payment terms or billing schedule
- New laws or regulations impact service delivery
- You wish to clarify the service scope to ensure that everyone understands their rights and obligations
5. LLC Operating Agreement
Your LLC operating agreement outlines how your LLC is structured and managed. Unsurprisingly, then, this agreement is a cornerstone of any successful LLC, because it protects the owner(s) and helps to resolve—or even prevent—conflicts.
Review and update your agreement at least annually, or if any of the following apply.
- There’s a change in ownership
- You want to clarify members’ rights and responsibilities
- New laws impact your LLC’s operations
- There are new tax or financial liabilities to consider
6. Partnership Agreements
A partnership agreement establishes the ground rules for structuring, running, and managing a partnership. It should always be reviewed and updated annually or earlier if:
- A new partner joins
- Your business goals change
- A partner leaves or passes away
- It’s necessary to clarify how disputes will be resolved
- You wish to minimize your financial exposure or risk
Do I Need an Attorney to Help Update My Business Contracts?
Technically, no. You can always review, update, and re-negotiate your own contracts! However, here’s why you should strongly consider seeking a contract lawyer’s advice before changing any contract terms.
- Compliance requirements change frequently. An attorney can ensure that your agreement includes any new obligations. Without such oversight, you could be exposed to unnecessary liability.
- Similarly, market conditions are always in flux. A lawyer can help to protect your best interests as commercial realities change.
- Your company’s needs evolve over time. An attorney can help you determine what changes you might make to continue growing your business.
Remember, business contracts are legally binding agreements. Without a lawyer’s oversight, there’s a chance you could face costly, time-consuming disputes down the line.
Got Questions About Business Contract Changes? Call Gordon Law!
Unsure when—or how—to update your business contracts? Then let Gordon Law help! With over 10 years’ experience helping business owners negotiate favorable contracts, we know how to protect your business interests.
Whether it’s finding ways to help your bottom line, or negotiating higher quality standards, we’ll explain your options and how you might proceed. If you wish to learn more or schedule a meeting, reach the Gordon Law team online or give us a call at (847) 580-1279.
