Contract Overview

Legal wording for contracts is the language used to describe the legal obligations agreed upon between the parties partaking in a contract. A contract is an oral or written agreement between multiple parties to trade items, services, or ideas of value that is enforceable by a court. As a business owner, you will have to sign contracts with suppliers, customers, vendors, and, if you have them, employees.

Since such contracts are meant to be legally binding, they will contain particular language to specify and enforce the terms being agreed to. This language can sometimes be difficult to understand, but it is important that business managers and owners have at least some familiarity with this language so as to better manage their legal affairs.

Language of a Contract

When drawing up a contract, there are a number of elements that will commonly be encountered. To successfully run a business, it is important you understand them. These elements are as follows:

  1. Basic information. At the top of the page, the date and the names of the parties involved should be listed. If the contract includes a business as a party, the full legal name of the business should be used.
  2. Details of the exchange. In plain, easy-to-understand language, what goods, services, or ideas are to be exchanged for what compensation should be laid out. Short sentences and paragraphs are ideal here, as well as a numbering system for each paragraph to provide for easy reference. If disagreement over the contract leads to legal proceedings, a judge will rule based on how an average person might interpret the contract. Therefore, it is important to be as specific as possible with the language.
  3. Addenda. These should be used if necessary. If you need to add a detail to the contract or if the detail would not fit in well within the existing framework of the contract, you can add it on after the main body of the text. Such addenda can be added as the contract is being drawn up or after, just as long as such additions are agreed to by all parties.
  4. Nondisclosure agreement (NDA) or confidentiality clause. If the party you are entering into a contract with will be privy to information you would rather not be shared with third parties, you can include a confidentiality clause that will forbid the party from sharing the specified information. You can also have them sign an NDA before signing the contract if you so choose.
  5. Termination clause. This specifies how long the contract will be in effect. For one-time exchanges, it should be stated that termination will occur when the transaction is completed. For an ongoing exchange of a service or services, it is common to indicate that a party may terminate the contract so long as they give 30 days’ notice. Language should be included to set out the consequences of breach of contract, although contract termination need not always be the first consequence.
  6. Legality. Any contract drawn up should be done so in accordance with all laws that have jurisdiction. Research should be done to be sure the contract abides by all relevant state and federal laws, lest the agreement be found void, or that is to say, unenforceable. For example, illegal services or goods cannot be exchanged in a legal contract.
  7. Date and signatures. The last item of a contract should contain the party’s signatures and the date on which they were signed.

Common Business Contracts

Most business contracts will fall into one of the following three categories:

  1. Sales-related contracts. These are contracts in which a party makes a purchase from another party of goods, services, or ideas. Examples of such contracts include purchase orders, security agreements, and bills of sale.
  2. Employment-related contracts. These are contracts in which an employer and an employee establish the terms of employment, including employer expectations and employee compensation. Examples of such contracts include independent contractor agreements, employment agreements, and consulting agreements.
  3. General business contracts. These are contracts that pertain to the actions and relationships between different business parties. Examples of such contracts include advertising agency agreements, stock purchase agreements, and joint venture agreements.

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