Uncategorized · July 10, 2021 0

Last-minute Revisions & Specific Accounting Practices

Don’t let one party’s constant revising of a negotiated contract trip you up. If you see excessive revisions, chances are, they’re trying to hide something in the edits. While it might be exhausting (or expensive, if you’re paying an attorney), review every revision, even if the other party claims it was just a clerical change. Otherwise, it could cost you big time down the line.

“The most common form of a pitfall is in an altered contract,” said Jesse Harrison, founder and CEO of the Employee Justice Legal Team. “An investor may make a change and claim majority ownership or may state that termination can be a possible option if profits do not meet a certain standard. This is generally not present on the first draft of a contract; it is often added in later after numerous changes have been made and negotiations agreed upon.”

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To ensure you understand all of the terms in the contract, have a dedicated attorney to oversee all contractual exchanges and to help you determine the best terms of partnership or investment, he said.

Sometimes, specific accounting practices might mislead investors to expect their dividends to be paid before management compensation, when, in reality, the opposite is true. To really understand the flow of money in an organization you’re investing in, it’s important to read the contract in its entirety and see what counts as a company expense.

“Frequently, investors will believe they are getting a preferred return, [where] they are repaid their investment plus interest before management and others receive any payout,” said Geoff Morgan, founder of Croke Fairchild Morgan & Beres. “Be careful, because management can pay themselves bonuses or other salary or compensatory payments that are classified as ‘expenses’ on the company’s income statement but have the effect of funneling money to management ahead of the investor.”