Entering a contractual business relationship is something that requires a lot of careful consideration. Creating a business contract is a serious task, and should only ever be entered into with another party when you’re sure of the relationship you want with said party, and that this corresponds with what is detailed in the contract.
When writing up a contract for a business, it’s important to put your interests first, and ensure these are protected. In order to do this properly however, you’ll need to know how business contracts work, and the guidelines you might need to adhere to whilst writing one up.
What is a Business Contract?
A business contract is a legally binding agreement between two or more parties. The goal is for all parties to understand and agree to agreements, obligations and responsibilities which set clear expectations and are detailed in the contract.
This contract is made right from the start, and can take up a lot of your time and effort so it may be worth hiring an attorney to help. Always make sure you have written proof of the agreement as well as terms bounding each party.
Things to Consider When Writing a Business Contract
When writing up a contract for a business, there are a few things you’ll need to consider. Two main areas to focus on when writing up this contract are the comprehensiveness of the contract and the ambiguity within it.
- Comprehensiveness – does the contract cover any and all possible situations that may arise within the realms of this agreement? The more comprehensive the agreement, the better protected you can be.
- Ambiguity – in a similar vein, it’s important to see whether any areas of the contract leave room for ambiguity. Ambiguous areas and unclear terms may lead to disputes over the contract.
Whilst these are two major areas to focus on when writing a business contract, there’s a whole host of things to consider that can help you create an agreement that works for you, these including the following:
Use Clear and Concise Language
Although you might think it’s expected to use complex legalese when writing up your contract, this is simply not the case. Some of the most effective contracts, particularly for those involving small businesses, are written using clear, easy to understand language. This way both parties know exactly where they stand with the agreement without having to decipher any complex and unnecessary terminology.
The most important factor to consider regarding the language of the contract is that it’s clear and effectively translates the obligations of both parties for holding up the specified agreement.
Organise the Content Effectively
It’s crucial that both parties understand all areas of the contract, and understand the conditions that will apply before signing. To help make the terms of the contract as clear as possible, it can help to label each paragraph with the topic it is regarding, and organise all topics in a format that’s easy to follow.
Categorising all of the paragraphs to corresponding labels can help make it easier for all parties to understand the contract, and therefore enables them to make a more informed decision when deciding to sign.
Think About Confidentiality
When entering a business contract, parties will often gain certain insights into one another’s operations, of which can include trade secrets.
To help keep your business’s private information private, clauses should be included in the contract preventing the other party from disclosing information about your business to others. This can help to protect your business’s best kept secrets and other private information you’d rather not have made public.
What Should Be Included in a Business Contract?
What you should include in a business contract will vary depending on what the contract is for and the various rules and regulations that govern this area of your industry. When planning out the contract, it can help to ask the following questions, and make sure these are all answered through the agreement:
Q) Who is entering into the agreement?
Define all parties entering the agreement through the contract, providing all the relevant information including their legal name, title, the company and their contact information.
Q) Who performs what tasks?
Outline which tasks will be performed by what parties, and all the relevant details surrounding this, including how the tasks are to be conducted, time frames etc.
Q) Who owns existing and future products?
If products are involved in the contract, it’s vital to establish which party owns these and at what point in time they will hold ownership of said products.
Q) How long will the contract last?
Define precisely the length of time the agreement is enforceable for – be this a year, a specific date range, or ongoing until actively terminated. With this, it’s also useful to consider renewal arrangements for the agreement, e.g. does it auto-renew annually or does it terminate and need to be re-written after the term has ended?
Q) What happens if the contract is breached?
Describe precisely what constitutes a breach in the contract, as well as how one can remedy the breach to avoid harm to their interest.
Q) What is each parties liability?
Make sure each parties’ liabilities pertaining to the agreement are outlined in the contract, including how much each party would owe/lose if in breach of the contract, and what the responsibilities are if in breach of the contact.
Q) How are any applicable payments made?
You’ll have to specify how payments relating to the agreement are made.
Q) How can a party terminate the contract?
Whilst you should have the period in which the contract is enforceable for outlined, you might also need to include how parties can terminate the contract. This may be a mutual termination agreement or an agreement that either side can terminate if the other side violates a major term of the contract.
Whilst these are all vital questions to provide answers to within a business contract, it’s important to note that contractual agreements between businesses, and thereby what is outlined within them, can vary.