As a business owner, you likely consistently look for ways to increase revenues and cut costs. Often, these methods involve working with entities in other states.
However, the state borders can complicate your contracts and business relationships. These are things you consider when you sign contracts with out-of-state entities.
What laws will govern your business relationship?
Each state has different business laws. Not only do they have different taxation and registration requirements, but they can treat contract disputes and breaches differently. They even differ on how they define “doing business.” For example, some require that you have a physical office in the state, while others may not.
Some states allow types of businesses, such as statutory close corporations, professional corporations and limited liability partnerships, that other states do not recognize. Therefore, your business contract should clearly identify what state’s laws will govern your contract.
It is unlikely that your contract governance can include the laws of a state in which you or your partners are not licensed. In addition, some contracts, such as insurance contracts and those involving the Uniform Commercial Code, may also not allow you to choose the governing law.
How does jurisdiction impact your contract?
Whereas governing law identifies the state whose laws apply if a contract dispute occurs, jurisdiction discusses where the dispute resolution ensues. This provision typically has a greater impact on both the contract and dispute because the court system in this state will determine the outcome. Consider an Idaho potato farm doing business with a grocery store in California. Idaho law and jurisdiction could favor the farmer, while California could favor the retailer.
To give your company its best defense during contract negotiations, get your terms, including governance and jurisdiction, in writing. Make sure the terms are clear, organized and simple to interpret.