Writing a business contract is no small task. It is a legally binding document that sets out an exchange of value or services and is a necessary part of many types of commercial dealings. When it comes to drawing up contracts no detail can be overlooked.
In many cases, companies and individuals normally call-in legal professionals to oversee the creation of these important instruments. However, it also possible to follow a more DIY method of contract creation.
In this guide, we’re going to take you step-by-step through how to write a contract yourself. If you’re using online templates to complete the process, this will help you prepare properly for what must be included in your final document. It also answers some of the most important questions people ask when building these types of forms.
Steps to Follow When Writing a Business Contract
When the time comes to write up a contract there are many factors that will need to be written into the text. Once you’ve decided what your main proposal will be with the other party, you can start formalizing this in a business contract.
The contract ultimately will need to specify what the exchange of value will be and must be written with the following points in mind.
1. Decide Which State’s Laws Will Apply
One of the first things that must be decided when sitting down to write your contract is which state’s laws will govern it. If both parties are based within the same state, then this is an easy question to answer.
However, if this agreement is going to work across state borders, it is normally suggested to adjust the contract to fit within the laws of only one US state. In addition, you should also specify a forum selection clause where arbitration and mediation processes will take place if a dispute arises.
2. Name the Parties Bound by the Contract
The next step of the contract writing process is to name the active parties in the agreement. Each person named on paper should be legally able to participate in a binding commitment by being sound of mind and over 18 years of age.
Further to this, the individuals you do name or sign with (especially if signing an agreement with a company or business) should have the correct authority to sign agreements either to offer the services described or on behalf of their employer. If not the contract could be rendered invalid or disputes may arise.
The names that are written into the agreement must be the correct, legally recognized names of the individuals signing. This is especially important when signing contracts with businesses as they must be identifiable by their full legal name including the LLC or Inc suffix.
3. Make The Obligations Clear
Once the initial proposal has been made and the contract is being drawn up, the precise obligations of participating parties need to be put in writing. As stated before, contracts rely on a high level of specificity.
Normally the contract will detail responsibilities and information such as:
- What payments should be made and when
- Services that should be performed
- Assets that should be exchanged
- Methods of payment
However, that doesn’t mean that the written language should be overcomplicated. Complex legalese is often considered necessary, yet isn’t a prerequisite. It’s totally acceptable to use standard English when writing this document.
The text should be comprehensive but clear and easy to understand. This can be done by using short sentences, numbered paragraphs, and clear headings. That way each part of the legal contract’s terms will be easy to understand and follow.
4. Put Methods In Place to Resolve Disputes
Even with the best of intentions not everything always goes to plan. Therefore, contracts need to be prepared with the worst-case scenario in mind. In this way, damage can be avoided by all active members of the agreement.
If the terms of the contract are broken in any way, that doesn’t automatically mean the deal has to be terminated. However, it does mean that the document needs to set guidelines for how a dispute can be resolved.
Supposing one of the parties reneges on part of the agreement, you should lay out steps that can resolve the issue. This might be professional arbitration, financial penalties, or other measures.
5. Create Clear Guidelines on How to End a Contract
Sometimes even with the best dispute resolution methods, a contract may have to end prematurely. Like with disputes, this eventuality must be prepared for before it happens.
You must state clearly the situations and circumstances that would signify a breach of the contract. This could be due to a lack of payment, missed deadlines, or failure to deliver what was promised.
Stipulations like these make it easy to end the contract without having to resort to legal counsel. This can ultimately save money and time should the agreement not be followed.
7. Read Over Everything in Full>
The devil is always in the detail when it comes to contracts. Before submitting the finalized draft for the participating members to sign make sure to proofread everything.
If you are satisfied with the instructions and obligations that have been laid out you can finally present the contract to the signing parties. Give each named entity or individual time to read over everything to check if there are any disagreements with the information presented.
In the event that you notice something is missing or an extra stipulation needs to be added, you can easily add an extra clause to the document at this point, prior to its signing.
8. Get All the Parties Involved to Sign the Contract
If everything is to the satisfaction of all parties named in the contract, then the document is ready to be signed. All that remains is for the named individuals or representatives to put pen to paper.
Signing a contract doesn’t need to be notarized in most cases. However, for some agreements, one of the parties may want a notary public to oversee the process.
9. Store the Contract Somewhere Secure
A contract will often continue in use for a long period of time. Your copy of the signed agreement needs to be kept in your records in the event you need to recheck its terms or in case of arbitration.
To store your document safely, keep it in a secure filing cabinet or folder that you can easily access. You should also consider creating a digital copy as a backup in case anything happens to the original.
Frequently Asked Questions About Business Contracts
Contract writing and contracts themselves can often seem daunting when first approached. You may have a lot of queries before starting. If so, read below for some of the most frequently asked questions about contracts and their answers.
What is a Contract?
A contract is a written agreement between one or more parties that details the exchange of goods, services, or intellectual property. Once signed, the people bound by the contract are normally legally required to honor the deal until it is fulfilled.
Are Contracts Always Legally Binding Once Signed?
In most cases, yes. However, contracts that are found to contain false or erroneous information, involve illegal activities, or have been signed by an individual lacking individual capacity could be rendered invalid.
Can a Letter of Agreement (LOA) Be Used Instead of a Contract
Letters of Agreement (LOA) in most cases cannot take the place of a contract. These are normally informal agreements that may later lead to a contract but are not enforceable in the same way.
Is Court Action Always Necessary if a Contract is Broken?
Fortunately, no. Contracts are normally written in such a way that matters can be settled out of court. However, if all attempts to resolve a dispute fail, legal action can sometimes be necessary as a last resort.
To save time and money LawDistrict can help you draw up your own contract online today. Our online contract builder will take you through each step of the process and guide you with writing the correct details into your completed form.
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