1. Forming a Contract
2. Putting a Contract Into Writing

When you're creating contracts for your business, you want to make sure everything done is correct. Here are the steps to take when making up a contract.

Forming a Contract

When going into a contract with a vendor, independent contractor, or customer, it's necessary to have a contract as a business. There are various types of business contracts. Some are multiple pages long, while others are barely a page long.

These are necessary because they're legal agreements written to protect your interests. Knowing what the necessary elements are to form and execute a contract will help you create a legal one. The first step in a contract is making an offer.

This is your expression of willingness to enter the contract with the intent of it becoming binding once the other party accepts. There are three elements in a contract, which include:

  • Commitment
  • Communication
  • Definite terms 

This means the offer must be communicated in a form that is oral, written, or generally understandable.

The offer should include terms that are precise and clear and a commitment to the terms of the contract. As an example, one party can tell their neighbor they want to sell them a boat for $5,000 and will finance it if the neighbor pays $1,000 per month for five months. This is an oral offer — a commitment — and terms that are definite since the dollar amount and boat are both named.

Both parties must consider the offer fair in order for it to be valid. This is also known as a good faith offer. Fairness can be tricky when it comes to contracts. It generally assumes that neither party will break or bend the terms or manipulate the other by tricky wording.

The second thing to think about when forming a contract is the consideration. This is what all parties agree to do or not do. Consideration should be equitable and fair. As an example, if the neighbor agrees to buy the boat, the consideration is giving the seller the money. The seller is giving up the boat in exchange for the money. 

The consideration is considered fair because the price that's being asked is close to the value of the boat. A fair offer won't have conditions that are impossible. For example, the seller shouldn't demand that the neighbor pays the $1,000 every month in $1 bills. That would be considered legal if the neighbor agrees to it, but that's an odd burden on them and it might not hold up later if the contract gets challenged.

Putting a Contract Into Writing

The first step to creating a contract is putting it into writing. Many counter offers and offers are oral instead of written in everyday use. The exception to this is in real estate. However, a written contract is still essential. Certain states require that contracts aren't enforceable unless they're written. Even if oral contracts are legal in a state, they're harder to enforce if one side doesn't hold up their part of the contract.

Some contracts go into the category of the "statute of frauds." Contracts involving real estate or land, contracts for goods over $500, or contracts lasting longer than a year must be put into writing. There is no evidence that can be shown for an oral or verbal contract. If one of the party disagrees on the terms of the contract later, there will be no proof of who is correct.

Courts have a hard time ruling on contracts that are oral. If a contract involves a consideration that's expensive, time-consuming, or important, it should be written. The names of the parties involved and the contract should be stated. The contract can have a name such as service contract or sales agreement. Everyone in the party should also be listed.

If a contract will be used repeatedly, a shorthand representation can be used throughout the contract (such as seller or buyer). The legal names of the people in the party should be listed in the contract. For example, the name of the contract might be "Sales Contract" and the specific buyer and seller should be listed.

If you need help with creating contracts, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.