Why Startups and the Self-Employed Should Not Use AI-Generated Contracts
As an IT lawyer, I advise startups, self-employed individuals, and companies daily on the drafting and review of contracts for startups. Lately, I have been asked more and more often whether it is possible to simply use ChatGPT or other AI tools to get contracts quickly and cheaply. My answer to this is a resounding no – and here I explain why.
In today's fast-paced business world, the urge to automate and speed up processes is great. This also applies to the drafting of contracts. The temptation to fall back on AI-generated contracts is understandable, as they promise time and cost savings. However, as tempting as this may sound, the risks and disadvantages far outweigh the benefits.
As an experienced lawyer, I have seen many contracts – both good and bad. I can say with conviction that an AI-generated contract can be of high quality, but this depends crucially on the right input and experienced use of AI tools. After more than two years of experience with AI, I know that the output is often only as good as the input. Legal expertise is essential to ensure that the input is appropriate and effective.
After all, a contract is far more than just a collection of clauses and legal phrases. It must consider the individual situation and the objectives of the parties, avoid legal pitfalls, and ensure clarity and legal certainty. All of this requires experience and judgment – skills that an AI does not (yet) possess.
Even advanced language models like GPT-4 or Anthropic’s Constitutional AI, which can deliver impressive results, are no substitute for human expertise. Ultimately, it is not about whether the AI is good or bad. It is about whether you, as an entrepreneur, are willing to take the risk of having to assess the quality and suitability of a contract yourself. This risk is high, regardless of how powerful the AI is.
Sample Contracts Are Nothing New
Long before the AI hype, sample contracts and templates were widely available online. However, the use of such patterns has always been associated with significant risks. A standard contract is never tailored to individual situations and needs.
Specific risks include:
- Important clauses may be missing.
- Inappropriate wording might be included.
- Legal pitfalls could be lurking unnoticed.
Even if a sample contract has been drafted by a lawyer, it does not mean it is suitable for every individual case. Every company has its own special features, objectives, and risks that must be considered in the contract. A standard contract cannot reflect this individuality; it is merely a template that requires adaptation to specific circumstances.
This is precisely where the problem lies: Without legal expertise, it is difficult to assess whether a model contract truly fits and what changes are necessary. Many freely available sample contracts are outdated, do not suit the specific situation, or contain clauses that can be disadvantageous for one party. The use of an unsuitable model can lead to misunderstandings, disputes, and, in the worst case, severe legal consequences.
Furthermore, these templates are often confusing and difficult to understand, especially for legal laypersons. Important aspects can be overlooked as they get lost in the contractual jargon. Even if you believe you have understood everything, there is no guarantee that the design is truly watertight and will stand up in court during a dispute.
Finally, remember that if you use a free sample contract and problems arise later, you cannot hold anyone liable. Unlike individual legal advice, there is no contact person responsible for the correctness and completeness of the contract. You bear the full risk yourself.
Of course, in some cases, using a sample contract as a starting point can be sensible. However, this should always be done with caution and with the involvement of specialist expertise. This is the only way to avoid unpleasant surprises and draft legally compliant contracts that meet individual requirements.
AI-Generated Contracts Are Even Riskier
AI tools such as ChatGPT can quickly and easily create contract texts. However, the quality and accuracy of these texts are highly questionable. The AI hallucinates content based on its training data, without any real legal understanding. It cannot assess whether the generated contract is suitable and legally compliant for the specific application.
Even advanced language models like GPT-4 from OpenAI or LLMs from Anthropic (e.g., Sonnet or Opus), which can provide good contract models, have their limits. The quality of the output crucially depends on the user's input and instructions. Without legal background knowledge, it is challenging to formulate the right prompts and assess the results correctly. For a deeper understanding of AI's legal implications, consider our insights on artificial intelligence in the company: legal aspects and risk management.
Another problem is that AI cannot fully grasp the context and specific requirements of a company or industry. Every contract must be tailored to individual needs and risks. An AI can generate standard clauses, but it cannot account for the parties’ strategic objectives, negotiating position, or business relationship. These subtleties demand human judgment and experience.
Moreover, AI lacks an understanding of the legal implications and potential consequences of certain formulations. It cannot weigh which clauses are appropriate or risky in specific situations. AI may also miss subtle nuances in language that can be legally significant. An experienced lawyer, conversely, can recognize and eliminate potential loopholes, contradictions, or ambiguities.
Additionally, the AI's training data is often outdated or incomplete. Changes in the law, current court decisions, or industry-specific features may not be taken into account. This poses the risk that AI-generated contracts do not reflect the current legal status or omit important aspects. A lawyer, however, is always informed about the latest legal developments and can ensure the contract covers all relevant points.
Last but not least, there is the question of liability and responsibility. If an AI-generated contract has defects or leads to disputes: Who is liable? The user who employed the AI? The provider of the AI software? Or the AI itself? These questions have not yet been conclusively clarified in legal terms. In the case of legal advice, conversely, it is clear that the lawyer is liable and responsible for their work.
Overall, the use of AI in contract creation is associated with considerable risks. Although technology is making impressive progress, it cannot replace the expertise and judgment of an experienced lawyer. AI tools can support the creation of drafts or the checking of certain clauses. Nevertheless, the final revision and approval should always be carried out by a qualified lawyer to ensure the quality and legal certainty of the contract.
More Than Just Contracts: Holistic Advice Is In Demand
My job is not simply to sell standard contracts. I offer my clients comprehensive advice and support. Together, we analyze the initial situation and identify opportunities and risks. I explain the legal context and develop a strategy with the client. Based on this, I create customized contracts optimally tailored to your needs.
This goes beyond the pure content of the contract; it also involves embedding it within the company's overall strategy. Key questions include: Which contracts are truly necessary? How should they be designed to support business objectives? What risks need to be covered? I discuss all these issues with my clients to find a holistic solution. Because only if the legal framework is right can a company concentrate fully on its core business and grow successfully.
As a lawyer and business consultant, I see myself as a personal companion to my clients on their entrepreneurial journey. I bring my many years of experience as an entrepreneur, IT enthusiast, and contract lawyer to every client relationship. I advise from the perspective of an entrepreneur with a deep understanding of the challenges and opportunities of the digital world. My approach extends far beyond simply drawing up contracts. I take the time to understand my clients’ situation and goals in detail. In intensive discussions, we work together to develop strategies and solutions perfectly tailored to the company in question. This process is built on trust, empathy, and forward-looking planning.
An AI may be able to generate draft contracts quickly. However, it can never replace the human element – the understanding of individual needs, creative problem-solving, and trusting cooperation. As a lawyer, I am not just a legal service provider but a sparring partner and advisor who speaks the language of entrepreneurs and shares their visions. This holistic, personal approach defines my work.
This is precisely the decisive added value I offer my clients, far beyond what an AI could ever achieve. Successful corporate management requires more than just standard contracts. It needs tailor-made solutions, forward-looking advice, and a trusting partnership of equals. And that is what I stand for with my expertise and passion.
Conclusion
My advice is therefore clear: do not blindly trust AI for your contracts. Instead, seek the support of an experienced lawyer. Only the combination of human expertise and intelligent technology can create tailor-made, legally compliant contracts that genuinely protect and advance your company. Let us utilize the possibilities of AI together, but always with the necessary caution and expertise.
While model contracts and AI-generated contracts may seem like a temptingly simple solution, they are no substitute for qualified legal advice. Tailor-made, legally secure contracts can only be created through a direct dialogue between client and lawyer. This approach is essential to reliably avoid legal risks and ensure the long-term success of your company. Therefore, rely on the expertise of an experienced lawyer rather than AI and templates. I will be happy to support you in creating the optimal contractual basis for your company. Simply contact me for a non-binding initial consultation.