Understanding Business Contracts

It’s easy to protect your business and build better relationships when a contract is involved. It exists in various forms, spans multiple pages, and represents different parties in an agreement. The right contract will help you avoid serious disputes by limiting your liability in particular cases. It’s one way to safeguard your business ideas from being imitated or stolen by competitors as well. You could either be a purchaser or a supplier of goods and services or possess a partnering agreement with another business for a joint venture. Although business contracts can be written, spoken, or a combination of both, it is highly advised to keep your agreements in writing to avoid issues that require the existence of a written document for proof.

The Importance of Contracts

One’s selfish intentions prompt even the most trustworthy individuals to betray you. This is one of the reasons why handshakes are no longer a favorable means of closing a deal, despite how common they were in the early years of trade. Leaving your business wide open to potential hassles that a signed contract would eliminate is not something you’d want to risk. Thus, binding agreements are made to offer your business legal protection should the need arise.

Contracts and agreements define the roles and responsibilities of the parties involved in an arrangement. Rather than argue about what you have to bring to the table, you can easily avoid confusion and misunderstanding by putting everything down in writing. This will bind parties to their duties, secure payments, and provide recourse for when the relationship falters for reasons that neither party has the will to fix. Project-based contracts also establish a time frame for the timely completion of deliverables. That way, you won’t have to worry about postponing a project due to poor management.

Now, doesn’t that sound more enticing than dealing with the consequences that erupt from a failed handshake deal? Even if the agreement does fall apart, the contract should disclose clauses that will compensate for the damages that were done.

Business Contract Samples

Check out the following collection of business contracts to see how these documents are written and used to protect the rights of a business and its clients, employees, or investors.

Five Things Every Business Contract Must Have

It’s good business practice to seal a transaction with a contract to ensure that all parties comply with the agreement. Provided that all key requisites for its validity are met, contracts may be used for any given scenario. It must contain an offer, an acceptance, an intention, and a consideration for it to be enforced in the court of law. While contracts typically vary in content depending on the requirements set forth by both parties, there are five basic details that must be included in the legal document.

1Names of Each Party: Always indicate the official names of the concerned parties. The use of acronyms is discouraged as they may be interpreted differently by external parties. Make sure to state the complete names of each party in the agreement. You can even make a list of accredited firms and regular clients for later use. Be sure that your suppliers and prospects are registered with the Securities and Exchange Commission to avoid the illegal trade of goods and services. 2Contact Information: Each party’s contact information is crucial when it comes to billing, especially for transactions that involve large sums of money. The document must include both parties’ complete office addresses, phone numbers, email addresses, website URLs, and other similar data. This will make it easy for each party to stay in touch with the other when an exchange needs to be made. 3Deal Specification: A contract must always state the full specification of the arrangement. This includes the date of its delivery or completion, the price of the product or service in agreement, package costs, terms of payment, and penalties for possible delays. Anything that was discussed and agreed upon in person must be reflected in the contract to prove that both parties are fully aware of the said arrangements. 4Terms and Conditions: This refers to the conditions that are specific to that contract, such as the payments, price variations, deadlines, and warranties that were identified in the document. This section may differ in length from contract to contract, as the weight and objective of the agreement will likely influence its scope. You can also use a separate sheet to enumerate these items in complete detail. By doing so, the document leaves little room for confusion and ambiguity. 5Signatures: A contract can only be put into practice once both parties have signed the agreement. Usually, four signatures are found in the contract to formally seal it. This includes the full names of the approving officials from each party. Approval officers are encouraged to read the contract and understand its provisions before signing it to avoid disagreements down the road. In most cases, drafts are prepared prior to its finalization so that both parties may negotiate on certain clauses that will determine whether the deal is worth pursuing or not.

Tips for Making a Solid Business Contract

Entering into a contractual business relationship with another entity is a serious and complicated task you don’t want to mess up. Even if it’s with a family member or a close friend, you need a contract to protect your business interests from wrongful intentions. It’s also good to have contingency plans for when things fall apart.

So to create a business contract that is both valid and effective, take note of the following guidelines.

Put it in writing. Oral agreements are often done when making minor decisions and slight changes in a transaction. However, such agreements possess a number of risks due to how difficult they are to enforce and prove on legal grounds. We all have faulty memories of events that we can’t rely on, which is why the first lesson in creating a contract is to always have it in writing. While the law may not require it, actual evidence can defend your business from an opposing party’s greedy schemes. Make it simple. Contrary to what many believe, you don’t need to stuff your contract with complex words and jargon to make it enforceable. A contract filled with pages full of confusing legalese will only cause readers to skip past the integral parts. The best contracts are written in plain language where readers can easily grasp every provision in the agreement before signing. Short, clear sentences that follow a standard structure will also keep the contract organized for parties to quickly find the information they need. Spell out the details. The rights and obligations of each party must be made specific in the agreement. Don’t leave anything out, even if these terms have already been deliberated in a verbal exchange. The last thing you would want is for people to interpret your contract differently from what was originally established. Any additional terms or changes that need to be made to the contract can be settled through a written amendment. These modifications shall be taken into account whenever the contract is reviewed during a court hearing or any formal discussion. Specify the circumstances that terminate the contract. Contracts don’t last forever. A contract may be terminated before the job is done, if major terms are violated, or if one party continually fails to perform their duties as expected. For instance, if one party misses too many payments to compensate for the services rendered by the other party, the latter should have the authority to terminate the contract without violating any important terms in the agreement. It makes sense to clarify these circumstances for all parties to be aware of.Agree on resolutions. A breach of contract can lead to serious consequences if they aren’t resolved appropriately. To avoid costly lawsuits and messy legal battles, you must agree on a way to address these disputes in a civil manner. If something goes wrong, everyone should communicate and know what actions to take to prevent the problem from escalating even further. It’s best to find an alternative that both parties will favor instead of attempting to settle the issue in court.

Strong contracts are designed to convey and establish the rights, responsibilities, and remedies of an agreement. It should define the relationship that one party shares with another party in a clear and comprehensible language. Proper documentation will give your business the protection it needs to avoid failed ventures and financial losses. So if you want to enter into a deal that will help expand your business, make sure you know exactly what you’re getting yourself into before signing.