Handshake deals are common in Colorado’s small business community. They feel efficient, personal, and rooted in trust. Many business owners assume that because oral agreements can be legally recognized in Colorado, they are safe.
They are not.
While some handshake deals may qualify as enforceable oral contracts under Colorado law, they carry serious legal and financial risks. These risks often surface only after a dispute arises, when proof is required and memories no longer align.
For many Colorado businesses, handshake deals become a ticking time bomb. If you need help assessing the validity of a handshake deal or preparing a written contract, we invite you to call our office at 970-893-8857 to schedule a consultation.
Are Handshake Deals Legal in Colorado?
Yes, some handshake deals can be legally recognized as oral contracts in Colorado. However, legality does not equal protection.
To enforce an oral contract, a party must still prove that an agreement existed and must prove the specific terms both sides agreed to. That burden is often difficult to meet. Courts do not enforce assumptions. They enforce evidence.
Why Are Handshake Deals So Risky for Business Owners?
Handshake deals rely almost entirely on memory and trust.
When a disagreement arises, there is usually no written record to clarify who agreed to what, when performance was due, or how payment was supposed to work. That lack of clarity is where disputes begin.
What Makes Oral Contracts Difficult To Enforce?
Oral contracts are hard to enforce because there is rarely objective proof of the terms.
If one party claims the agreement included two deliverables and the other claims it included one, the court must decide whose memory is more credible. That is an expensive and uncertain position for any business.
What Terms Are Usually Missing From Handshake Deals?
Handshake deals often omit critical business terms, including:
- Payment amounts and payment deadlines
- Scope of work and deliverables
- Ownership of intellectual property
- Termination rights
- Remedies if one party fails to perform
Without these terms in writing, disputes are almost inevitable.
What Happens When a Handshake Deal Goes Bad?
When a handshake deal breaks down, the consequences can extend far beyond the original disagreement.
Costly Litigation
Disputes over oral agreements frequently lead to lawsuits. These cases often turn into credibility contests that are expensive to litigate and difficult to resolve. Even if you are right, proving it can cost more than the deal was worth.
Operational Disruption
Unclear agreements can stall projects, freeze vendor relationships, or derail partnerships. For growing businesses, this disruption can interfere with cash flow, staffing, and customer relationships.
Personal Liability Exposure
In partnership or joint venture situations, informal verbal agreements can expose business owners to personal liability.
Without a written agreement defining roles, ownership percentages, and responsibility for debts, disputes can spill over into personal finances.
Can Handshake Deals Create Personal Liability?
Yes.
In some cases, verbal agreements can be used to argue that a partnership existed. That can expose individuals to personal responsibility for business obligations, even if no formal entity documents were signed.
How Does Colorado’s Statute of Frauds Affect Handshake Deals?
Colorado law requires certain types of contracts to be in writing to be enforceable. This requirement is known as the Statute of Frauds.
The Statute of Frauds exists to prevent fraud and misunderstandings by requiring written proof for agreements that carry higher financial or long-term risk. When a handshake deal falls into one of these categories, a court may refuse to enforce it even if both parties believed they had an agreement.
For business owners, this means that some handshake deals are not just risky but legally unenforceable from the start.
What Types Of Agreements Must Be In Writing Under Colorado Law?
In Colorado, the Statute of Frauds generally applies to agreements that include:
- Contracts that cannot be fully performed within one year
- Agreements involving the sale of goods above a statutory dollar threshold
- Contracts related to real estate or interests in real property
- Certain promises to pay the debt of another party
If a handshake deal falls into one of these categories and is not in writing, it may not be enforceable in court.
What Happens If A Handshake Deal Violates The Statute Of Frauds?
If the Statute of Frauds applies and there is no written contract, a court may dismiss a breach of contract claim entirely. This can leave a business owner without legal recourse, even if money was spent, work was performed, or both parties initially agreed to the deal.
Does Partial Performance Fix A Statute Of Frauds Problem?
Not always.
In limited situations, partial performance may support enforcement, but this is highly fact-specific and often contested. Relying on partial performance is risky and frequently leads to litigation over whether an exception applies.
Why Is The Statute Of Frauds Especially Dangerous For Businesses?
Business agreements often involve long timelines, high dollar amounts, or ongoing obligations. These are exactly the types of arrangements the Statute of Frauds was designed to cover. A handshake deal that feels informal at the outset can later be used as a defense to avoid payment or responsibility.
Why Written Contracts Protect Colorado Businesses
Written contracts do not eliminate disputes, but they drastically reduce uncertainty.
A clear contract documents expectations, allocates risk, and provides a roadmap for resolving disagreements before they escalate.
What Should A Written Business Contract Include?
At a minimum, a solid written agreement should clearly address:
- Scope of work or services
- Payment terms and timing
- Deadlines and performance standards
- Ownership of work product or intellectual property
- Dispute resolution procedures
- Attorney fee provisions when appropriate
These terms protect both sides and reduce the likelihood of litigation.
Best Practices for Colorado Business Owners
Handshake deals may feel efficient in the moment, but they often create long-term exposure. Colorado business owners should take proactive steps to reduce risk, including:
Document Agreements Early
Even a short written agreement is better than none. Putting terms in writing forces clarity and prevents misunderstandings.
Replace Informal Deals as the Business Grows
Many businesses start with informal arrangements. As revenue, risk, and relationships grow, those arrangements should be formalized.
Use Contracts to Deter Disputes
Well-drafted contracts can include mediation or arbitration clauses and attorney fee provisions that discourage unnecessary litigation.
Is A Simple Written Agreement Enough?
Often, yes.
A clear, tailored agreement that reflects how the business actually operates is far more effective than relying on verbal promises or generic templates.
When Should You Talk to a Colorado Business Attorney?
If your business relies on handshake deals, informal partnerships, or verbal understandings, it is worth reviewing those arrangements before a dispute arises. Addressing risk early is almost always less expensive than fixing it later.
Schedule A Consultation With An Experienced Colorado Business Attorney.
If you are a Colorado business owner relying on handshake deals or informal agreements, Anzen Legal Group can help you evaluate your risk and put proper safeguards in place.
Call Anzen Legal Group today or schedule a consultation to protect your business before a disagreement turns into litigation.
