Writing Business Contracts: Everything You Need to Know
A well-written business contract could mean the difference between winning and losing a dispute in court.3 min read
2. Start With the Basics
3. Termination Clauses
4. Other Important Aspects of Writing a Business Contract
When writing business contracts you want to be clear, include all the necessary information, and cover potential issues with the proper clauses. A well-written business contract could mean the difference between winning and losing a dispute in court.
How to Write a Business Contract
First, the company forming the contract will want to make sure that all involved parties are legally allowed to be a part of the contract. Contracts are only valid if all parties are physically and mentally capable of participating.
All legal contracts must have what's called consideration. This is what is being exchanged. Contracts don't exist when nothing of value is being exchanged. If something of value is given by one side, but nothing is exchanged in return, this is a gift and a contract cannot be formed.
Usually, consideration in contracts involves goods or services being exchanged for money. The reason for creating the contract must be legal in order for it to be considered valid in a court of law. If a contract is centered around the exchange of illegal goods or services, that contract is void. For example, a contract cannot be formed for the purpose of selling illegal drugs.
The contract terms should be completely clear to both of the parties involved in the agreement.
Start With the Basics
As you begin to form the contract, basic information should be laid out clearly. This includes:
- Date of the contract formation
- Legal names of individuals or businesses involved in the contract (including any identifiers like titles or designations)
- Purpose of the contract (what is being exchanged)
Some contracts, especially between larger companies, may include names of persons authorized to sign agreements on behalf of the company. Usually, these people hold higher positions in the company like the CEO or director.
The consideration should be laid out clearly. Spell out exactly what is being exchanged, when it will be exchanged, and for how long. Some companies may enter into a contract for services to be provided on a regular basis, other times contracts may only cover a one-time exchange.
Non-compete clauses are also helpful when writing business contracts. They can prevent the contractor you are working with from providing the same products or services to one of your business' competitors for a specified period once your contract is terminated.
It is also a good idea to outline how to handle any issues or disputes. Certain terms and conditions can include provisions for the payment of legal fees should a lawyer get involved. Sometimes the contract will stipulate that the losing side of the case is responsible for the legal fees of the winning side.
Small business owners should include an ADR (alternative dispute resolution) clause in order to prevent costly court trials. An ADR clause may stipulate that any legal issues that arise between the small business and the contracted party must be handled through arbitration or mediation rather than litigation. ADR methods are generally less expensive and time-consuming than a trial. Plus, public trials could get the attention of the local media and potentially harm the reputation of the business.
Termination clauses should spell out exactly how the contract can be terminated or become void. Certain types of business contracts are only meant to last for a specific period of time. When used for an exchange of products or services only to take place once, contracts are terminated as soon as the exchange is complete.
Other Important Aspects of Writing a Business Contract
Be sure to research current contract laws that would apply to the particular type of contract you will be forming. This will help to ensure that the contract will hold up in court and not end up being unenforceable.
There are a few requirements for a contract to be considered valid, including:
- Clear offer extended
- Acceptance of said offer
- Legal purpose
- Ability of parties (are the parties legally allowed to enter into a contract considering age and mental capacity)
You always want to be sure that you fully understand your company's responsibilities and liabilities before signing a contract. If you enter into a contractual agreement with another party and don't hold up all of the terms and conditions stipulated, you open yourself and your business to legal action.
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