Is there the right time for a binding commitment?

Oftentimes I am asked by clients if the transaction they are about to conclude is “in any way”, binding.

There may be “shades of gray” towards the completion of a commercial transaction. In my experience I represented those who wanted it to be binding and those who would do their utmost to protract their decision. Those who wanted to close soon, and those who wanted to take another reasonable step without adverse consequences.

Certainty is still paramount to those who work in international trade and in complex manufacturing, operations which require a high degree of predictability from buyers and sellers to prosper and bear long-term fruits. Hence the legitimacy of the question.

Certainty, however, is gradually less of an attribute of our system of life and work. Market signals, thanks to abrupt social, environmental and economical changes, are becoming less relevant to indicate if time is ripe or not for a point of no return. Peculiar times of profuse information but of less consistent elements to assess risk-reward. We manage uncertainty indeed, more than ever before.

Entrepreneurs need counsel, discernment and tools to take critical business decisions. There is a hidden cost of taking binding decisions at the wrong moment, sooner than required. Breaking the project into parts, paying according to milestones and deliverables, acting tight with expectations. Signing non-binding term sheets or heads of agreements while certain key marks are not yet reached.

Stretching the deal without making it definitive and binding is an equally legitimate approach in many business instances. Lawyers and entrepreneurs need to be prepared to work in an increasing ambiguous environment while keeping business decisions under reasonable control and accountability. There is great acumen and ethics required to get this action right.

I must say it does not take a great amount of legal complexity to make a transaction legally binding. What is challenging and subtle but greatly rewarding is to keep a transaction alive and functional with the least negative effects in case of termination, in exchange to gaining time and resources for an informed and wise choice.

Needless to say I take great joy in driving business leaders to the best possible moment for a critical decision, for the least possible cost of the “do-nothing” alternative. The moment an entrepreneur believes is right for undertaking the binding commitment. The moment you are near the crest and decide to stand up and ride it down or just decide to wait for the next wave.