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19 errors in legal documents that have cost businesses the most

Business owners may feel confident in their abilities to handle every aspect of their operations. However, legal documents and processes are not one of those areas that are worth the risk of DIY efforts. Writing, reviewing, and handling legal documents are nuanced processes requiring specialized knowledge and skills. Without proper legal expertise, mistakes can happen, with consequences sometimes only making themselves known when it is too late.

In this blog post, we explore the challenges of understanding legalese and regulations across different jurisdictions, and keeping pace with legislative changes. We also list and detail the top most costly errors made by businesses in their legal documents and explain why they happened. Lastly, we provide a solution for each error and showcase AI as a perfect legal assistant for all business needs.

Why is legal writing and handling documents challenging?

Unlike other forms of writing, legal documents are not only made to comply with standard grammar rules and conventions, but they must adhere to stringent requirements. Legal writers need to understand the language of laws, regulations, and case law in different jurisdictions. Without this knowledge, it is easy to make costly errors. In addition, legislative changes can occur quickly which makes keeping track of all the nuances even more difficult.

The requirements mentioned above are not always the same for all legal documents. Legal writers must take into account the complexities that can arise from provisions that vary based on jurisdiction, context, and relevant law. As such, the potential for errors is significant enough to warrant expertise, specialized knowledge, and attention to detail.

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The top costly errors in legal documents made by businesses

There is a reason why getting into the legal profession requires academic credentials and years of specialized training. Businesses can easily make errors when attempting to DIY their legal paperwork, resulting in costly consequences.

We have prepared a list of common errors in important documents, as well as some other mistakes made by businesses that need to be fixed by legal industry experts. Another consequence of such mistakes is a loss of credibility, as a company without proper legal document management can be seen as unprofessional and a risk to work with.

We do not include simple spelling or grammatical errors, sentence structure problems such as too much passive voice, or formatting mistakes, though these, too, can be dangerous.

1. Failing to properly secure and protect sensitive information

In today's world, businesses handle large amounts of sensitive data, including trade secrets, confidential information, and client/employee records. Poorly drafted agreements that lack adequate confidentiality clauses and protection can lead to data breaches or third party data misuse.

2. Failing to address intellectual property ownership

Businesses rely on their IP for strategic, competitive advantage. However, ownership, licensing, and transfer arrangements of such property can be complicated and nuanced. IP-related agreements should, therefore, be drafted with precision and clarity to avoid costly ownership disputes that can erode a company's competitive edge.

3. Overlooking key provisions

Legal documents, such as vendor agreements or nondisclosure agreements, often include crucial clauses that require careful attention. Without proper expertise, businesses can overlook critical provisions (e.g., non-compete, termination, renewal). The absence or errors in these clauses can lead to disputes, legal challenges, and financial losses.

4. Incorrectly addressing parties

All legal documents should clearly identify involved parties, as this is crucial for enforcement and dispute resolution. Misnaming, misidentifying, or using the wrong legal title for any of the parties can make the document invalid or unenforceable.

5. Poor formatting

Legally binding documents must follow a certain format and include all mandatory information in the right order. If any of these elements are missing, the document might be invalid or deemed unenforceable by courts.

6. Incorrect citations

Legal documents must cite relevant laws and regulations correctly to be legally binding and enforceable. Failing to do so can have significant financial consequences in case of disputes.

7. Outdated documents

Keeping up with legislation is key for businesses to remain compliant and competitive. It is important to review and update legal documents regularly, as outdated regulations can put a business at risk.

8. Incorrectly classifying workers

Employment law is complex and continuously evolving. Misclassification of workers (as independent contractors, for example) can lead to costly litigation, fines, and penalties. Inaccurate classifications are a common mistake for businesses that take the DIY route, as they struggle with the differences between employees, freelancers, contractors, and other categories and how they relate to taxation, benefits, and other regulations.

9. Inadequate structuring of partnerships or LLCs

When starting a business, entrepreneurs often create limited liability companies (LLCs) or partnerships to protect their personal assets. While these structures offer various advantages, they also have complex requirements. Failing to satisfy these obligations can have devastating consequences, such as exposure to personal liability, dissolving of partnerships, or financial losses.

10. Inaccurate signatures

A legal document is not valid without a signature, and the signatory must be clearly identified. If the document contains invalid or incorrect signatures, it can be challenged in court and may not be enforceable.

11. Not having a contract in writing

Oral contracts are not enforceable, and any agreement that lacks a written document is unlikely to be recognized by courts. Many DIYers mistakenly believe verbal agreements are sufficient, leading to severe financial losses in case of disputes. It is crucial to know when an email or text message confirmation is enough, and when a proper contract needs to be signed. Examples of such cases include employment contracts and purchase agreements.

12. Entering into a contract with the wrong entity

Businesses sometimes make the mistake of signing contracts with entities that do not have sufficient authority to bind their company in a legally binding agreement. The party may be unaware of the contract terms, lack the power to enforce them, or be insolvent, leading to costly disputes and legal challenges.

Additionally, it is important to offer enough details about each party so that there will be no doubt or confusion if, and to include information about the capacity in which each signatory is signing the contract.

13. Over reliance on legal document templates

Businesses must understand the limitations of templates and determine when they need to seek professional legal advice. Failing to tailor template documents to their unique needs can lead to costly mistakes, such as overlooking important clauses or not adhering to correct and relevant regulations in different jurisdictions.

14. Bad choice of governing law

The governing law of a contract is the set of laws that applies to it. Depending on the circumstances, this can be either the law of one country or a combination of two or more countries. Choosing the wrong governing law may lead to businesses missing out on certain protections and provisions, such as those related to limitation periods, dispute resolution, or legal costs.

15. Incomplete scope of party obligations

Legal documents must clearly set out the duties and responsibilities of each party in order to be legally binding. Failure to include such information or having incomplete provisions can lead to costly issues down the line, as parties may be under the wrong impression of their obligations or rights.

16. Incorrect date of signing

The date a legal document is signed is an important element in determining the legal relationship between two parties. Incorrectly marking this data can lead to confusion when enforcing the agreement or calculating time limits.

17. Relying on case law that is no longer precedent

Case law is an important source of legal information and can be used to support a contentions position. However, laws change over time - a case can be overruled or superseded - so companies must ensure they are using the most up-to-date sources when preparing documents.

18. Failure to track deadlines

Legal documents often involve certain deadlines, such as those related to payment of debts or filing with the court. Missing these timelines can result in severe financial losses and even lead to loss of rights altogether.

19. Forgetting to track changes in existing documents

Contracts change over time, for example when they are amended. Companies must ensure they are aware of all changes to the documents, as missing something or focusing on a prior version rather than the current one can lead to significant disputes.

How to avoid legal document mistakes?

Avoiding costly mistakes is highly dependent on the presence of expert legal knowledge, specialized writing skills, and attention to details. Therefore, it is always advisable that businesses work with experienced legal counsel to guarantee error-free documents. Quality legal counsel can review, draft or negotiate legal agreements with confidence and ease. Businesses can also rely on AI-powered legal tools, which provide assistance and context-specific guidance to help you produce better quality documents.

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Legal AI as the perfect assistant for businesses

Advanced legal technologies such as AI are transforming the way legal documents are created, revised, and managed. Unlike traditional methods, AI-powered solutions enable businesses to access valuable insights into their contracts in real-time. This provides greater visibility into contractual commitments and helps identify potential risks or issues before they arise. Additionally, these tools offer better document management capabilities, which can streamline processes and help businesses stay compliant.

Handling and creating legal documents needs to be approached with care

Every business owner must recognize the importance of expert legal advice and the risks of DIY efforts when creating legal documents. Despite the temptation to save costs on legal counsel, the consequences of mistakes can lead to irreversible harm and losses. By understanding the common mistakes and taking corrective measures, businesses can focus on the most risky issues and streamline their document management process. Leveraging the power of AI-driven tools can help businesses avoid errors in legal documents that could have devastating consequences.