Wednesday, October 21, 2020
Home Business Law How to Write a Business Contract: The Complete Guide

How to Write a Business Contract: The Complete Guide

Are you trying to figure out how to write a business contract? This guide will show you exactly what to do.

A business contract isn’t something you write on a whim. A contract is a legally binding document that you draft after much deliberation and consultation with the concerned parties. All involved entities must understand the obligations, responsibilities, and penalties before putting pen to paper.

You’re exposed to business contracts the moment you start your business, and by the first few years, you’ll have written or signed dozens of them. Anyone who starts a business must know how to write a business contract. You don’t want to write something that ends up putting you and your business in turmoil.

Writing a business contract isn’t rocket science, but there are plenty of ways you could go wrong. Plus, remember, a business contract isn’t like most of your company documents. It’s a legally binding document, and any mistake or breach of the contract will have costly legal repercussions.

In this guide, we’ll be looking at the correct way to write a contract for your business. That way you don’t embarrass yourself or end up giving away your company accidentally, the next time you write a contract.

Also See MoreBusiness.com’s Free Sample Contracts

Understand the Structure of a Business Contract

You’ve probably signed dozens of business contracts, but this time the ball is in your court. A contract clearly outlines the parameters of an agreement, and what role each party must play in the agreement.

The fundamentals of a contract are:-

  • The date the contract was drafted
  • The contract expiry date
  • Damages for breaching the terms of the contract
  • The amounts the parties must pay, and when they must pay
  • The names of every party involved in the contract

Although the content of business contracts are separate, all contracts have the above in common. Once you understand the particulars of a business contract, you can proceed to the actual writing of the contract.

Write Down Your Agreement

Verbal agreements with other entities rarely hold as formal agreements. The purpose of a contract is to formalize your agreement and even get the law involved. So while verbal agreements might hold for small businesses, they are difficult to enforce for large business deals.

So after understanding the structure of a contract, the next thing you should do is write everything you agree on. Clearly spell out all the terms of the agreement and avoid any ambiguity or contradictions in the written agreement.

Simplicity Is the Key

It’s a good idea to keep the contract as simple as you can to avoid any confusion or contradictions. Use simple short sentences, with normal conversational language when writing your contract. Avoid big grandiose words, even if you want to impress your partners.

It’s okay to have headings for different segments of your contracts, and even to number these segments. The simpler the contract is, the easier it is for the involved parties to understand.

Be as Detailed as You Can

The phrase “the devil is in the details” also applies to contract-writing. Without straying from the main subject, try to make your contracts as detailed as possible. No parties should be scratching their heads over what a particular term or phrase in the contract means.

Read through your contract and eliminate all ambiguous phrases or terms. For instance, instead of using every mid-month, use every 15th of the month. Also, do away with terms like “maybe” or “possibly,” that are non-confident and ambiguous.

Should you change something about your deal, make sure you make it official by changing it in the contract. No court accepts verbal agreements as part of the contract.

Include Payment Details

Don’t forget to include how the involved parties are supposed to make their payments. This includes the amount of money they’re supposed to pay and the deadline for the payment.  You should also specify how each party should make the payments.

For instance, whether the parties should pay in installments, or whether they should make a one-time payment. Most contract disputes stem from delayed or late payments, so it helps to be as specific as possible.

Include Terms of Terminating the Contract

Contracts rarely last forever, unless they’re perpetual contracts.  Even these perpetual or indefinite contracts may expire should one party want out. This decision to leave a contract is sometimes due to unfair treatment or payment disputes.

You need a mechanism in place that makes any case of termination of the contract simple for all parties. You need to spell out the terms of contract termination clearly so that all parties are on board with the method.

Remember, you don’t have to leave the contract if a single party decides to opt-out. One party may decide to detach itself from the agreement. However, before they do so, they have to give notice to other members so they can agree with the decision.

Consider Your State’s Contract Laws

Different states have different laws regarding contractual agreements. These laws are for resolving any disputes that may arise with the involved parties. In most contracts, there’s a clause that identifies the state laws that govern the contract.

This small segment gets all the members up to speed on the laws that dictate the contract before they sign it. In most cases, you might need a lawyer to help you with this particular section of the contract.

Know How to Write a Business Contract the Right Way

You don’t have to pull your hair out, over a simple task like writing a contract. Hopefully, now you know how to write a business contract the right way. Before furnishing your contract to the involved parties, it’s a great idea to have a lawyer go through it.

A lawyer will help plug any loophole and iron out any issues with your business contract. Contracts are crucial documents that may affect every aspect of your business. For more guides on everything business-related, make sure you have a look at other pieces on the site.

Free Templates for You

Retail Bike Shop Business Plan

See how you can start your own retail bike shop! Use this example retail bike shop business plan as a helpful resource when writing a business plan of your own.

New Hire Press Release – Copy/Paste This Format and Example

Copy/paste this new hire press release to create a new employee announcement for your organization to get more exposure and credibility.

Corporate Relocation Press Release

When you relocate your business it's important to let your customers know. Make the announcement with this press release sample.