Many entrepreneurs remain on standby as tariff rates and news headlines change and reverse daily. As the 90-day pause on tariffs looms, startups may struggle with making decisions on their sales strategy, production targets, and import and export processes. How should legal documents be drafted and executed amidst ongoing price turbulence? This article will review some issues that you may want to take a closer look at.
Purchase Price
A contract will usually state a fixed purchase price that must be paid in full. If the buyer fails to do so, then this constitutes a material breach of contract that can void or nullify the contract or subject the party at fault to a lawsuit.
As tariff uncertainty continues to weigh, consider increasing the flexibility of the pricing clause. Instead of setting a fixed purchase price, consider setting a fixed base purchase price that may be increased by an amount calculated using the applicable tariff rate at the time that the contract is executed. Moreover, entrepreneurs may want to consider staggering the purchase price, with an initial amount calculated using the current tariff rate to lock in the deal, and additional amounts calculated using the applicable tariff rate at different intervals.
Termination
The effective date is the date on which a contract comes into effect. At least some obligations must be performed immediately or shortly thereafter, such as the payment of the purchase price or the delivery of certain goods or services. Contracts may state additional dates for the performance of more delayed obligations. No matter how they are structured, dates are an essential component of contracts.
As tariffs create price confusion, the effective date may fail to materialize if shipments are postponed or if prices increase to the point that the buyer requires more time to collect funds. When this happens, contracts may be cancelled last minute or delayed indefinitely.
Ensure that your deals are equipped for sudden contract terminations. Keep termination clauses loose to allow for tariff-related changes. Make Plan Bs in case it doesn’t work out with your first-choice suppliers or buyers, and make sure that your contracts permit this.
Legal Notices
How should logistical disruptions be communicated to your startup’s stakeholders? Should you even bother with a legal document?
The short answer is no. Price changes do not need to be communicated through a legal document if they do not materially affect, or affect in a legally binding or otherwise significant way, the rights of your customers, clients, and shareholders. In other words, if you need to raise the price of a service or good that you provide in a way that does not disrupt any existing contract, then you do not need to communicate this increase through a legal document. A simple note will do.
If a legal document is needed, however, what should be included? You should state clearly that the logical disruptions will materially affect the rights of your stakeholders and offer them an opportunity to consult with professionals such as attorneys or accountants. You should offer them a channel for speaking with team about the disruptions. And finally, you should provide stakeholders with initial solutions for mitigating the disruptions and the material impact on them.
In A Nutshell
With the first trade court in the United States having blocked the Liberation Day tariffs, the ongoing turbulence may come to an end sooner than expected. Nonetheless, it may still prove useful to plan ahead to avoid legal complications. The key is to always communicate as clearly as you can, and in as much detail as it makes sense for your startup.
