08.15.2022

How to Write a Business Contract

Contracts are part of doing business. They can take many forms, from a handshake or verbal agreement to a written agreement. Since handshake or spoken agreements are difficult to prove, a written contract is ideal when you or your company agrees with another company or individual.

A contract should outline the rights and responsibilities of the parties involved. The language you use in an agreement is critical. An unclear phrase or sentence can lead to confusion or nullify the contract. Business contract attorneys can help you create agreements that preserve your interests, protect your business, and limit liability.

WHAT IS A BUSINESS CONTRACT?

A business contract is an agreement between parties that the law can enforce. Another way to define a business contract is as a promise between parties. Party A agrees to perform specific tasks or provide certain products. Party B agrees to pay for the tasks or products. 

As long as a business contract follows relevant laws, a civil court can enforce it. If your company enters into a contract with another, and the other party doesn't uphold their end of the contract, you can take them to court. The reverse is also true. If you sign a contract with another party, then don't follow through, the other party can take your company to court. 

TYPES OF BUSINESS CONTRACTS

Multiple types of business contracts exist. Your company will likely enter into various kinds of agreements throughout its existence. Examples of different business contract types include:

• Sales and service contracts: Sales or service contracts describe what a company is buying, how much they pay for it, and when the products or services are delivered.
• Employment contracts: Employment contracts detail the length of a job, how much a person will get paid, and the termination process. 
• Partnership agreements: If you work with another person or business, you can enter into a partnership agreement with them. The contract will detail your and the other party's responsibilities.
• Leases: When your company rents property, it usually enters into a lease agreement with the landlord. The lease should describe the property, how much you pay each month, when you need to pay, and responsibilities regarding maintenance.

WHY ARE BUSINESS CONTRACTS IMPORTANT?

A business contract protects your company. When you have a written agreement with another party, there is little room for confusion regarding responsibilities and expectations. 

Contracts are a normal part of doing business. There are several reasons why they are an essential component of business life:

• They reduce business risk: Some level of risk is involved in operating a business. The vendor you hire might not work out, or the manufacturer might not be able to produce the products you need. Contracts give you legal protection if the other party can't follow through. They clearly define each party's role, so there's little room for debate if one side doesn't follow through. 
• They create a paper trail: While business contracts do not always need to be written, that is the preferred form. A written contract gives you tangible proof of the agreement. You can refer back to it in times of disagreement. If you go to court, you can present the contract as evidence.
• They streamline communication: A fair amount of back and forth is involved in creating a business contract. The process can help to improve communication between parties. Once the contract is signed, communication is more efficient, as either party can refer to the contract if they have a question about their requirements.
• They can improve business efficiency: When you enter into agreements with other parties, you can outsource tasks that don't produce much revenue or take up a lot of time. Outsourcing means you can focus on more mission-critical tasks. 
• They protect both parties: Ideally, a business contract will protect each party. Party A gets a product or service it needs while Party B receives compensation. If there is a problem, both parties can take the other to court or try to work out a solution. 
• They make your business more trustworthy: Being willing to put things in writing can improve your company's reputation, which can then lead to more clients and business.

HOW TO WRITE A BUSINESS CONTRACT

Rule one of creating a business contract is always to put it in writing. A commercial contract lawyer can help you create a contract that's most appropriate for your situation. The following tips help ensure your business contracts have all the necessary information and will hold up in court, if necessary. 

1. USE PLAIN LANGUAGE

The clearer and simpler your business contracts are, the better. When you use plain and simple language in your agreements, you eliminate the chance of confusion. Keep your sentences short and avoid legalese. If you give the contract to a middle school student and they understand it, that is a good sign. 

Along with using simple language, break up the contract text using headings. Headings make the text easy to scan and can help you and the other party find necessary information more quickly. 

2. IDENTIFY THE 5 W'S

Include all of the relevant details in your contract. Use the five W's as a guide:

• Who: Who is the agreement between?
• What: What is the contract for? Explain the goal of the agreement and what it will accomplish.
• When: If the contract is time-sensitive, explain when it will be valid or when the work will be carried out.
• Where: If there's a specific location involved, include that in the contract.
• Why: Include the purpose of the contract or what you hope it will achieve. 

3. INCLUDE PAYMENT INFORMATION

Add in details about payment in the contract. Include the amount to be paid, when payments are due, and how they should be made. 

Include information about any late payment fees, and detail what happens if one party does not pay after a designated time frame, such as 30 or 60 days. 

4. DESCRIBE TERMINATION PROCEDURES

A contract can be for a defined period, such as one year. It can also be indefinite. At some point, though, all contracts come to an end. Include information about what happens at the end of the contract. 

In the case of an employment contract, the employee might not be allowed to work for competitors within a particular radius. A vendor might not be allowed to poach clients from your company.

5. INCLUDE DISPUTE RESOLUTION

Ideally, everything will go well with the contract. If there are issues, you need a process for resolving them. Include information about the resolution process. You might require mediation before any court proceedings can occur. You might also want to limit the location of any legal proceedings so they can only occur in your state. 

HOW TO ENSURE A BUSINESS CONTRACT IS VALID

For a contract to be valid, it needs to involve the exchange of something of value between multiple parties who are in agreement. The parties need to be of legal age, over 18. They also need to be of sound mind and able to make their own decisions. You do not need anything beyond that to ensure the validity of a contract. 

CONTACT WHITFIELD & EDDY FOR YOUR BUSINESS CONTRACT NEEDS

Whether you need help writing a contract or coming to an agreement with another party, the business attorneys at Whitfield & Eddy are here for you. We can assist with all of your business contract needs. Contact us today to schedule a consultation with a business contract lawyer.