GET IT IN WRITING.
That’s the cardinal rule of contracts. While some states honor oral agreements, there’s nothing like having it down on paper in black and white. And if your company doesn’t put “routine” agreements in writing, then you’re just asking for complications.
Here’s what you need to know about contracts.
What is a Business Contract?
First, the basics.
Business contracts include any agreement between two or more parties in which something of value is exchanged. Usually one person agrees to perform a service or deliver a good in exchange for “valuable consideration,” which is often money.
Some business contracts you might see as a business owner include:
- Service Agreement
- Purchase Agreements
- Buy-sell agreements
- Bill of sales agreements
- Employment and non-compete contracts
- Real estate transactions and lease agreements
- Licensing agreements
- Loan agreements
- Independent contractor agreements
Tips for Drafting and Using Business Contracts
- Put the agreement in writing.
- Keep it simple. You don’t need to write in Legalese; plain English is just as binding.
- Include the following essential clauses:
- The services/products to be rendered.
- Payment and pricing details.
- When performance/delivery is expected.
- Representations or warranties made about the services or products.How disputes will be resolved.
- How the contract will be terminated.
- Consider including the following:
- Limitations on liability if the other party does not think the services or products meet expectations.
- A clause relieving you from breach if unforeseen circumstances arise.
- A confidentiality agreement if appropriate.If you’re hesitant about asking someone to sign a contract, simply say that it’s company policy.
- If you’re hesitant about asking someone to sign a contract, simply say that it’s company policy.
- Most importantly, make sure you understand the terms of the agreement. Don’t just copy and paste someone else’s contract terms if you don’t know exactly what they mean and how they apply to you. And don’t sign a contract without understanding exactly what you’re signing.
Why Contracts Are Helpful
You’re probably thinking that contracts are most helpful when someone breaches the terms and the matter goes to court. Then the contract will prove who was right and who was wrong.
Sure, but that’s not the primary advantage of having a contract, at least not based on what I’ve seen as a business lawyer. Contracts are most valuable because they get all parties on the same page. They clarify things. They are preventative and encourage smoother relationships. They help avoid confusion and disagreements over what one party thought the other party was going to do. If a question does come up, everyone can refer back to the contract instead of arguing about it. What could have become a disaster was avoided entirely because there was a contract in place.
Of course, there are people who will constantly try to take advantage of others. In that case, having a contract may or may not help you in the end. Even if you’re in the right, it may not be worth your time or money seeking legal recourse. My advice is not to enter contracts with those people to begin with.
- Draw up contracts that you expect to use many times, such as vendor or employment contracts. You may want to have them reviewed by an attorney in your state.
- Before signing any contracts, make sure you understand all the terms in it. If not, utilize an attorney at an hourly rate to help clarify. Or, if you can’t afford an attorney, Google it, or even ask the person who gave you the contract.