Entrepreneurs make mistakes when looking for generic models on the internet

Many entrepreneurs are resorting to a risky practice when opening their companies: looking for social contract models available on the internet to formalize their business. The use of standard and generic contracts can put the company’s administrative and financial structure at risk in the long term, as experts in business law warn.

Social contracts establish the foundations of the business partnership, such as the division of responsibilities, the rights and duties of partners, the management of the company and provisions for scenarios such as death, departure or disagreement between them.

Believing that these models meet the basic requirements for registration with the Commercial Registry can cause serious problems in the future, as explained by Ricardo Santos, partner lawyer at Fonseca Lima e Bastos Consultoria Jurídica, specialist in mining and business law.

“Many continue operating with this contract until a problem arises — for example, a conflict with a partner, the departure of a member or even the death of someone. In many contracts available on the internet, these events are foreseen in a very general way. However, in practice, this can generate serious complications. We have seen companies paralyzed because the contract did not provide, for example, what would happen if the managing partner died. In these cases, the other partner cannot automatically take over. If the contract does not provide for a specific clause, the surviving partner may need to go to court to obtain permission to manage the company temporarily”, he explains.

Also according to the lawyer, this legal process can take time, and the Court is not always able to meet business needs urgently. “An example: there was a company that was paralyzed for six months due to lack of contractual provisions. The solution was to go to court so that one of the partners could temporarily take over the administration”, adds Santos.

Another common example is the difficulty in excluding an unwanted partner or dealing with a financial impasse when evaluating the shares of a partner who wishes to leave. Santos explains that, in the absence of clear predictions, situations like this can result in long and costly legal conflicts, damaging the company’s financial health and stability.

“Another example we faced was the disagreement over the value of the shares of a partner who wanted to leave the company. The partner who left thought that the shares were worth more than what the remaining partners thought was fair, almost resulting in a legal dispute that, in addition to harming the administration, could cause major losses”, comments the expert.

The use of standard contracts has been identified in both small and medium-sized companies and large businesses, especially those that grew quickly without updating the contractual basis, says Santos.

When reviewing client contracts, he says he noticed that many were extremely basic, with the same five or six generic clauses, with no provision for important issues. In these cases, customers were informed about the risks of these contracts and a review service was offered to avoid future problems.

“Even large companies, which started small, sometimes maintain simple contracts. As long as no problems arise, they don’t bother to update them. But it’s a risk. We have large clients in the mining sector who, when examining the contracts, realized that they were similar to those of a small company”, he says.

The expert states that the drafting of contracts should always be accompanied by a lawyer, who will foresee future problems and personalize the document according to the dynamics of the partners, foreseeing solutions for possible impasses, especially in companies with two partners with equal participation. The legal professional, according to him, can insert clauses for conflict resolution, such as designating an arbitrator or even a founding partner as mediator.

“A well-written contract is an investment in the security and continuity of the company. It not only protects the partners’ assets, but also ensures that the company can overcome moments of crisis and continue operating. The recommendation applies to all companies, regardless of size: reviewing and updating the articles of incorporation is an essential precaution to avoid losses, stoppages and legal conflicts that could seriously compromise the future of the business”, concludes Santos.