KEY TAKEAWAYS

  • Legally binding documents establish the roles and responsibilities of the parties to the agreement

  • Legally binding documents establish legally binding obligations

  • Legally binding documents are legally enforceable

When two or more parties promise to fulfill their obligations and place their intentions in writing,  they create a legally binding document. Some common legally binding documents are contracts, agreements, leases. These documents not only establish the roles and responsibilities of the parties, but are enforceable in court.

What is a Legally Binding Document?

A legally binding document is a legally enforceable written agreement between two or more parties. The document outlines the rules, rights, and responsibilities of individuals, businesses, and organizations. These documents can help ensure fairness and order in contractual relationships. For a document to be legally enforceable it must have the following elements:

  • Offer and acceptance: One party must make a clear offer, and the other party must accept it. 

  • Consideration: Both parties must exchange something of value, like money, goods, or services. 

  • Parties must have legal authority to enter agreements. They must be of legal age and mentally competent.

Why You Need a Legally Binding Document

Drafting a legally binding document helps to formalize the legal relationships and also establishes the rights and obligations in various transactions. This helps to ensure that both parties have a clear understanding of the terms of the contract and also helps to ensure that there are not any mistakes when it comes to execution of the contract.  They also offer legal recourse if their terms are not met. As such, they are key to order, accountability, and trust in formal relationships.

Types of Legally Binding Documents

There are several types of legally binding contracts. Let’s review a few below:

  • Partnership agreements

  • Service agreements

  • Operating agreements

  • Confidentiality agreements

  • Employment agreements

  • Non-disclosure agreements (NDAs)

  • Leases and rental agreements

  • Sales agreements

  • Wills and Trusts

  • Settlement agreements

  • Franchise agreements

Steps to Create a Legally Binding Document

Identify the Purpose and Parties Involved

The first step in creating a legally binding agreement is to identify the purpose of the agreement. Identifying the purpose helps to ensure that the parties to the relationship have a clear understanding of the business relationship and the terms of the relationship. This involves defining the roles, responsibilities, and expectations for each party.

For this step, the parties should clearly state the reason for the contract. Whether it is a service contract, an employment contract or a confidentiality agreement, the parties should clearly state the reason that they are entering into the contract.

Draft the Document

After clearly stating the purpose of the legally binding document, the parties should officially draft the document. The document should include the essential terms such as: the scope of the agreement, payment terms, the duration of the agreement, and any nondisclosure clauses.

Review and Revise

After drafting the document, it is important to carefully revise the document to ensure that the document includes all the essential terms. If you are unsure if everything has been included, you should have an attorney review the document.

Execute the Document

Once you confirm the document meets all specifications, it's time for all parties to sign on the dotted line. Depending on the document, you may need to sign it. You may be able to sign it electronically, or you may have to provide a wet signature. If you are unsure, you should see legal advice.

Store the Document

Since legally binding documents protect parties in the event of a lawsuit. It is important to store the document in a safe place. If these documents are lost, damaged, or destroyed, they may become hard to enforce. To avoid this issue, consider storing the document in a safe, a safety deposit box, or giving a copy to your lawyer.

Common Mistakes to Avoid

When drafting a legally binding document, working with an attorney is important so that you can avoid these common mistakes:

  • Vague or ambiguous language

  • Missing essential clauses

  • Failure to get signatures from all parties

  • Not keeping a copy of the signed document

  • Not understanding the contractual obligations

Conclusion

A legally binding document is key to formalizing agreements. It protects the interests of all parties. Such documents define rights, responsibilities, and expectations. They ensure commitments are honored and disputes are minimized. These documents are important because they are enforceable. As such, before you enter into any agreement be sure to draft a legally binding document.

Frequently Asked Questions

What is another word for legally binding?

Another name for legally binding is legally enforceable. This is a contract that is recognized by law and can be upheld in court.

What is a legally binding obligation?

A legally binding obligation is a duty or commitment that is recognized by law and enforced by the court.

What does legally bound to do mean?

Being legally bound means that the individual is obligated to perform the terms of the legally binding document.