When a handshake is not enough

In the start-up scene, it is not uncommon for services such as web design or software development to be commissioned without a written contract. However, this practice, which may seem straightforward at first glance, harbors considerable legal and financial risks. Not having a written agreement can lead to ambiguities regarding the scope of services, remuneration and rights of use. For start-ups in particular, which often operate with limited financial resources, such uncertainties can threaten their existence. The supposed time saved by dispensing with formal contracts can prove to be a costly mistake in retrospect. In addition, uncertainty about rights of use and the scope of services can significantly hinder business development. In a business world where intellectual property and digital assets often form the core of the business model, a clear legal basis is essential. It is therefore strongly advisable to rely on a solid contractual basis, even for supposedly uncomplicated business relationships.

The legal problems of verbal agreements

Verbal agreements are generally binding under German law, but are often difficult to prove in the event of a dispute. Without a written agreement, there is often a lack of clear agreements on the scope of services, deadlines and remuneration. This can lead to considerable misunderstandings and legal conflicts, especially if unexpectedly high invoices are issued. The problem is exacerbated if the parties have different memories of the agreements made, which can result in a “statement versus statement” scenario. It becomes particularly critical with complex technical specifications or detailed design requirements, which are difficult to communicate precisely verbally. Without written documentation, there is also no basis for improvements or adjustments during the course of the project. This can lead to delays and quality deficiencies that jeopardize the entire project. For start-ups, which are often under time pressure and depend on punctual market launches, such uncertainties can have fatal consequences. From a legal perspective, it is therefore imperative to insist on written contract documentation, even for supposedly simple contracts.

Claims of the contractor in the absence of a price agreement

In principle, a service provider is entitled to the agreed remuneration. If no specific price has been set, the “usual remuneration” is deemed to have been agreed in accordance with Section 612 BGB. This is based on customary industry rates and can vary considerably depending on the complexity and scope of the service. Determining the “usual remuneration” can lead to considerable disputes in practice, particularly in innovative areas where no fixed market prices have yet been established. Contractors may be tempted to claim higher rates than originally assumed by the client. This can lead to a considerable financial burden for start-ups with a limited budget. In extreme cases, a contractor could even refuse to hand over or use the created work until an agreement on remuneration is reached. For a startup that may have based its entire business strategy on the commissioned service, this can threaten its very existence. There is also a risk that the contractor will charge for additional, not explicitly agreed services that it considers necessary for the fulfillment of the contract. From a legal perspective, it is therefore strongly advisable to make clear and detailed price agreements in advance.

Burden of proof and legal consequences of disputes

In the event of a dispute, it is up to the contractor to prove the conclusion of a contract, the agreed scope of services and the provision of the services. Without a written contract, this proof is often extremely difficult. Although emails, sketches or witness statements can serve as evidence, their probative value is often limited. Providing evidence can be a lengthy and costly process, especially if it comes to court proceedings. For start-ups, this means not only financial risks, but also a considerable commitment of time and resources that would actually be needed for business development. Uncertainty about the outcome of a potential legal dispute can also deter investors and jeopardize the company’s financing. In some cases, there could even be accusations of breach of contract or unfair competition if services are used for which the remuneration is disputed. This can have not only legal but also reputational consequences for the startup. From a legal perspective, it is therefore imperative to ensure clear and comprehensive contractual documentation from the outset in order to minimize such risks.

Determination of “customary remuneration” as a legal benchmark

In the absence of a specific price agreement, the standard industry remuneration shall apply as a benchmark. This can be determined by expert opinions or comparative offers. For services such as web design or programming, there are often guideline values from professional associations that can serve as orientation. However, determining the “usual remuneration” is often not trivial and can lead to lengthy legal disputes. In innovative areas in which start-ups are often active, there may be a lack of established benchmarks. This can lead to contractors demanding higher rates than originally calculated by the startup. Obtaining expert opinions is costly and time-consuming, which places an additional burden on young companies. There is also a risk that the calculated “usual remuneration” is significantly higher than the startup’s budget, which can lead to financial bottlenecks or even to the project being abandoned. In such cases, start-ups may be forced to make payments under pressure that exceed their financial planning in order to avoid legal consequences. It is therefore highly advisable from a legal perspective to make clear and detailed price agreements in advance in order to minimize such risks.

Legal consequences in the event of non-agreement

If no agreement is reached between the parties, there is a risk of legal action with potentially far-reaching consequences. In the worst-case scenario, this can lead to lengthy and cost-intensive legal proceedings. A possible ban on the use of the website or software created can significantly impair the start-up’s business activities. There is also a risk of damage to the image of both parties, which can be particularly critical for young companies in the start-up phase. Delays in the company’s development can weaken its competitiveness in the long term. It is particularly problematic that without clear contractual regulations, the rights of use to the website or software created can be unclear, which can block its use. This can have catastrophic consequences for a startup, especially if central business processes or the entire business model depend on the disputed service. Uncertainty about the rights of use can deter potential investors and jeopardize the company’s further financing. In extreme cases, there could even be an accusation of copyright infringement if disputed services are used without a clear transfer of rights. This can not only lead to high claims for damages, but also have consequences under criminal law.

Preventive measures and legal solutions

In order to minimize the risks described above, it is essential from a legal perspective that start-ups and young entrepreneurs always insist on written contracts. These should clearly define the scope of services, deadlines and remuneration as well as milestones and acceptance processes. If anything is unclear, it is strongly advisable to seek legal advice. Investing in a carefully drafted contract may initially seem like an additional expense, but it pays off in the long term thanks to legal certainty and clarity. It is advisable to develop standardized contract templates that can be adapted to specific projects. This ensures consistency in business relationships and saves time. Regular training for employees on contract management can help to raise awareness of the importance of written agreements. In the event of a conflict, an out-of-court settlement should be sought first, whereby mediation can be a helpful tool. Should legal disputes nevertheless arise, it is essential to involve specialized lawyers at an early stage in order to protect the interests of the startup in the best possible way.

Conclusion: The importance of legal contract review for start-ups

The supposed simplicity of verbal agreements often proves to be deceptive and risky in practice. It is therefore essential for start-ups and young entrepreneurs to rely on clear, written contracts from the outset. These create legal certainty, prevent costly disputes and lay the foundation for successful business relationships. Experience shows that the short-term additional work involved in drawing up and reviewing written contracts with a lawyer is disproportionate to the potential risks and costs that can result from unclear agreements. A solid legal framework can provide a decisive competitive advantage by allowing you to concentrate on the core tasks of building a company without being slowed down by avoidable legal conflicts. In addition, professional contract management signals seriousness and professionalism to business partners and investors. The involvement of a specialized lawyer in drafting and reviewing contracts should therefore not be seen as a cost factor, but as an important investment in securing the future of the company. A well thought-out, legally reviewed set of contracts not only serves as a protective shield against legal risks, but is also a strategic instrument for corporate management and development. It therefore forms an indispensable basis for the sustainable success of a start-up in an increasingly complex and competitive business environment.

Author: Marian Härtel

Marian Härtel ist Rechtsanwalt und Fachanwalt für IT-Recht mit einer über 25-jährigen Erfahrung als Unternehmer und Berater in den Bereichen Games, E-Sport, Blockchain, SaaS und Künstliche Intelligenz. Seine Beratungsschwerpunkte umfassen neben dem IT-Recht insbesondere das Urheberrecht, Medienrecht sowie Wettbewerbsrecht. Er betreut schwerpunktmäßig Start-ups, Agenturen und Influencer, die er in strategischen Fragen, komplexen Vertragsangelegenheiten sowie bei Investitionsprojekten begleitet. Dabei zeichnet sich seine Beratung durch einen interdisziplinären Ansatz aus, der juristische Expertise und langjährige unternehmerische Erfahrung miteinander verbindet. Ziel seiner Tätigkeit ist stets, Mandanten praxisorientierte Lösungen anzubieten und rechtlich fundierte Unterstützung bei der Umsetzung innovativer Geschäftsmodelle zu gewährleisten.