Watch Your Language! – 4 of the Most Misconstrued Legal Terms

By Nina Kaufman, Esq.

As the age of “Greed is good” has morphed into an “era of relationships,” so has the language we use. Terms and phrases evoking collaboration, cooperation, and working for mutual gain abound. You see it in the marketing pieces and hear it in the vernacular of small business owners. From a business point of view, it’s a welcome change in attitude. There’s only one problem: some of these feel-good terms are “word wranglers” that have a legal meaning very different, or more complex, than their users intend.

Accurate communication is crucial, especially in business. A wrong word, a misunderstood term, could mean the difference between a happy customer and a lawsuit. Four of the frequently-used word wranglers are:

1. Partner/partnering. As currently used, “partner,” and its gerund form “partnering,” tend to refer (vaguely) to a host of business relationships or forms of close collaboration. Why is partnering any closer than any other form of collaboration? It isn’t, necessarily, but the feeling we get by saying “we’re partnering together” – note the power of words, here — may make us feel stronger, linked to another in a more profound way, than by saying “we’re cooperating on…”

However, “partnering” does not mean that you have a partnership in the legal sense . . . and in fact, you probably want to avoid that implication. Legally, partners are people who participate in a venture with shared benefits and shared risks. Partners are (generally) each 100% personally liable for the debts of a business venture. That’s not what business owners are usually willing to take on when they think of “partnering.” When partnering, the parties are usually concerned with creating a mutual “upside” – such as putting together a seminar series or working for a mutual client. There really isn’t much of a downside.

See how confusing it all becomes? And when business is conducted informally, people make assumptions (for example, that when referring to “your partner,” even if the two of you are shareholders in a corporation, the two of you really are partners, with unlimited liability to provide). The solution: stay away from phrases like “my business partner”. Although awkward, try “my business colleague,” “business associate” or “co-owner.” Also, avoid “partnering.” You may be collaborating, cooperating, working together, have joined forces or have teamed up to work on a project. You might even have a strategic alliance…

2. Strategic Alliance. Like an iPod, strategic alliances have become the latest “thing to have” – at least insofar as building business relationships are concerned. But what does this term really mean? Used generally, many small business owners use it to refer loosely to a collaborative “bond” with another company. But there’s more involved in a real strategic alliance relationship.

A strategic alliance lies in the muddy area between a basic referral relationship (“I like you, so I’ll refer business your way”) and a joint venture (where a new company is formed with the two participants as the owners). By definition, a strategic alliance is “a coalition formed by two or more people (or entities) in the same or complementary businesses to gain long-term financial, operational, and marketing advantages without jeopardizing competitive independence.” A mouthful, yes. But note the implicit ongoing (“long-term”) obligations. Think of a marketing strategy firm that forms an alliance with a graphic design firm to attract a Fortune 1000 clientele.

Once you move beyond a mere referral relationship, questions (and complications arise): is the relationship with each other exclusive? If not, what are the exclusions? Who will take the lead on the projects? Through whom will payments get funneled? Who “owns” the client? Small business owners are often so excited to say they have “alliances” in their stable, that they don’t consider the long-term issues that can harm the relationship if not addressed. The solution: if the alliance really is “strategic,” have it in writing so that both sides are clear about their expectations.

3. Agent: Another way that small business owners try to provide greater “value-added” to their clients is by referring them to the other service providers in their network. For example, Ingrid, an interior designer, referred her apartment-owning client to Oikos, Inc., a company that built custom-made furniture. Oikos delayed providing the client with the furniture and the client delayed making the final payments. Ingrid got caught in the middle. “I’m an agent for the client,” she worried. “What happens now?”

First, the mere act of making the introduction did not necessarily make Ingrid an agent of the client. The fact that the client signed an agreement with Oikos directly helped bolster that. But had Ingrid contracted with Oikos and been allowed to make those decisions, the situation would have been murkier. So, to flip the situation around, for those of you dealing with “Ingrids,” or middlemen, watch out! By definition, an agent has the power to bind a principal if she has (or appears to have) the authority to do so. So if you gave the green light to your technician/reseller to get a new computer system, you would be financially responsible for paying for it. And unless the decision made by the technician was way beyond the bounds of what you authorized (e.g., a $20,000 network when you only authorized a $2,000 desktop), the agent is not personally responsible for the decisions made. The solution: consider making your arrangements with the ultimate vendor directly, or give unambiguous, written instructions to “Ingrid” so that she’s clear about what you want.

4. Vested interest. Business owners distinguish their companies from the competition by promising better, more personalized, more caring, more responsive, more [“fill in the blank”] service (than the next guy or gal). I have come across websites, marketing materials, “mission statements” and the like where the business owner expresses her intent to provide stellar service by stating that [“Company] has a vested interest in your satisfaction.” I’m not going to quibble about the eminently fine objective. It’s the “vested interest” part that raises concern.

When you have a “vested interest” in something – a pension plan, for example – it indicates that you have the right to a legal share in the property, and that right exists now. Our eager service provider does not have any legal right to the company for which she may provide services. Nor does her goal of stellar service translate to any kind of legal right. Yes, it’s in the best interest of her company to ensure that she delivers stellar service, but that doesn’t make it “vested”. The solution: consider phrases like “It is the mission of XYZ Company to provide you with stellar service” or “it’s our goal” or “it’s in our interest to ensure your happiness”.

Is all of this nit-picky? Maybe. But in this era of relationships . . . that can sour easily and lead to lawsuits . . . isn’t it better to keep matters simple by avoiding the “word wranglers” altogether?

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