Learning how to write contracts and agreements is essential for a successful business. They are such an integral part of business transactions that it is an essential skill to master. Many businesses develop standard contracts and agreement forms so they can easily be customized for different situations.

What Is a Contract?

A contract is a legally binding document that establishes certain obligations between two or more parties involved. “Parties” can be individuals, other businesses, or other institutional entities. Typically, parties enter into a contract when they agree to exchange something (either goods or services) that they want to be enforceable by a court. Thus, someone should not enter into a contract unless they are certain they can perform those exchanges.

How to Write a Contract?

Contracts are governed by state law. Under state law, there are only a few types of contracts that are required to be in writing, such as mortgages or contracts that cover a period of one year or more. However, it is always a good idea to get an agreement in writing. Note, it is not required that a contract be drafted by an attorney. Anyone can draft and enforce a valid contract.

When writing a contract, there are two things to keep in mind:

  1. Make sure the contract addresses all of the possible scenarios that may arise.
  2. Make sure the contract terms are not ambiguous.

Ambiguous terms have the potential to lead to differences of opinion between the parties to a contract. When this happens, there is an increased risk of litigation which can result in court fees and delayed contract completion. It is always advised to include as much information as possible in the contract so that disputes and misunderstandings are less likely.

Contracts must specify the terms of the exchange and each party’s duties and responsibilities. For instance, if the contract is an exchange of goods, it must state and describe the goods, how many are involved, how much it will cost, and terms of delivery.

In addition, the contract must always include the basic information about the parties involved and the specific agreement, such as:

  • The start and end date of the contract
  • The names of all parties to be bound
  • Payment amounts, in what form, and due date
  • Potential damages for breach

How to Properly Execute a Contract

A contract arises when one party makes an offer and the other party accepts. There are verbal contracts, but most will be in writing.

To make an offer, one party drafts the terms of a contract and sends it to any and all parties involved. The offer may be accepted or rejected by those parties. It is typical for a party to reject the original offer/contract, but to counteroffer with changes to the contract that they would agree to. This counteroffer must then be accepted by the first party in order for a contract to be created. An offer can be revoked so long as it has not yet been accepted. Once an offer has been accepted, a contract is legally formed and a revocation would result in breach of contract.

Contract negotiations typically occur between the parties involved to ensure that they are both satisfied with the arrangement. Once both parties agree to the terms, they must both sign and date the contract. Both parties should keep a copy of the contract for their records.

Common Tips for Writing a Contract or Agreement

If you are thinking about entering into a contract, the best advice is to get the agreement in writing. Oral agreements can be binding in certain situations, but to avoid confusion and minimize the chances of disputes, the agreement should be written down in the form of a contract. Written agreements are easier to enforce.

The provisions of a contract should be detailed. Each term should be defined in specific language that leaves no room for ambiguity. Specific dates or prices, if applicable, should be listed. The details of the contract can always be modified later by writing an amendment to the contract that all parties sign and date.

If you need help writing a contract or agreement, 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, Stripe, and Twilio.