1. How to Write a Business Contract
2. Contract Drafting Tips

Updated July 13, 2020:

The drafting of contracts may not be the most exciting activity, but it is definitely worth the time and effort. In contracts, the details matter, and every word, sentence, and paragraph is critical to a contract's legality and interpretation. It takes precision and time to create an enforceable contract that both sides are happy with. 

The art of negotiation is vital in creating a strong contract. Drafting and negotiating contracts requires special skills. Most small business owners and managers will be required to draft contracts throughout their careers, so it is helpful to have a basic understanding of contracts and to know when a business lawyer should get involved.

A basic contract is formed when one party offers something to another party in exchange for something of value, and the offer is accepted. To be valid, a contract must follow a few basic rules. All contracts must include the following:

  • Intent to make a contract
  • Lawful subject matter
  • Offer made by one party
  • Acceptance of offer by the other party
  • Exchange of something of value
  • Written agreement in circumstances like the sale of real estate

An agreement can be revoked, rejected, or counter-offered before the contract is complete. An offer can be revoked any time before it is accepted. However, if a party agreed to leave the offer open for a certain amount of time, the offer can't be revoked until that time frame is over. As soon as the offer is accepted, an agreement is made.

If a party doesn't accept the deal that is offered, the contract is rejected. If a party rejects the agreement as it is proposed and adjusts the terms in their own agreement, they are offering a counter-offer that the other party can then reject or accept. Accepting an offer is fairly simple. A contract can be accepted with a written or clearly spoken statement, or if a party performs their side of the agreement or promises to do so.

How to Write a Business Contract

Contracts are the foundation of the business world and make it clear which parties are involved in an agreement. When you are involved in a contract, you should understand the terms and conditions of the agreement. When writing a contract, keep the following things in mind:

  • The contract should be written in a clear language that both parties understand. Adding jargon and unnecessary words only makes things more confusing.
  • A contract should be detailed, and clearly state what each party is agreeing to do.
  • The terms should be as straightforward as possible, especially when it comes to how one party will pay the other.
  • A contract should add an option of confidentiality for either party.
  • Both parties should have a clear understanding of how the contract will end.
  • A contract should follow state and federal laws.
  • If the contract ends up as part of a lawsuit, there should be provisions for potential solutions, attorney fees, and mediation and arbitration clauses to avoid taking the issue to court.

Contract Drafting Tips

Many lawyers specialize in litigation or transactional law, but solo practitioners or lawyers who work at smaller firms often end up doing both tasks. Even lawyers who concentrate on litigation should still be able to draft a basic, legally binding contract.

Before drafting the contract, the client should create an outline of the contract for the lawyer, and include their understanding of the arrangement between the parties. The outline might not turn directly into the contract, but it can guide the important points of the agreement, and point out areas the client may have overlooked, including what would happen if circumstances change or a party breaches the contract.

One of the most important parts of drafting a contract is ensuring the language is clear and unambiguous. Avoid flowery words and legal jargon. A contract should be clearly understood by someone who isn't a lawyer. You want to think like a lawyer, but not write like one. Be careful in how you use conjunctions like and, or, and but, and modifiers like knowingly and actively, which can quickly change the meaning of an agreement and make it unclear to all parties.

If you need help with the drafting of 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.