Handshake agreements, also known as “gentlemen’s agreements,” occur when two or more parties come to an understanding and each agrees to provide the other with a service. There is no paperwork. Instead, both parties merely shake on it and hope the other party will follow through.
When forming a small business, you will rely on numerous other parties to carry out various services for you. For example, you may hire a contractor to work on the building for you. The contractor does not offer any paperwork, but instead insists the two of you simply shake on it. Although a handshake is symbolic, it will not do much from a legal perspective.
Always create a written contract
The problem with handshake agreements is that there are generally no witnesses. There are only the two parties involved, and there is nothing present to suggest the agreement even took place. From a legal standpoint, the plaintiff will have an uphill battle attempting to prove the agreement was in place and that the other party negated the agreement.
With a written contract, the witness is the document itself. More than likely, both parties had to meet with an attorney to finalize the document to ensure everything was legitimate. With a signed document, that proof is present. Therefore, in the event that one party fails to live up to the expectations of the contract, the burdened party can go to court to attempt to recover damages.
Better to play it safe than sorry
Some parties worry that dragging in lawyers and formal contracts will slow down the process, but you do not want to take any chances. Besides, people who are confident in their work will have no problem agreeing to a contract. If another party wants you to commit to something with only a handshake to agree on it, then you need to look elsewhere.