Legal
Handshake Agreement
Also known as: Oral agreement, verbal contract, undocumented deal
An oral or undocumented business arrangement. Legally enforceable in many cases, but nearly impossible to transfer to a buyer. Conversion under diligence pressure always costs more.
WHY IT MATTERS
A handshake agreement is not legally void. Oral contracts are enforceable in most jurisdictions, and a decades-long course of dealing establishes terms by performance. The problem is not legal validity — it's transferability. If the contractual right exists in the memories of two people, the buyer is purchasing something that can't be produced in a dispute and won't be collateralized by their lender. Handshake agreements fall into three buckets at the buyer's feet. The buyer requires conversion to a written agreement before close, which means renegotiating with a counterparty who now knows you're selling — and you no longer have leverage. The buyer prices the uncertainty in and reduces the offer. Or the buyer excludes the handshake entirely and makes formalization a closing condition, forcing the seller to accept whatever terms they can get under time pressure. Every handshake the founder converts to writing while they still have leverage — lease, supplier terms, customer pricing, commission structure — is one fewer surprise during diligence.