Signing a contract can be intimidating to many small business owners. However, not signing a contract can be a lot riskier. Contracts, by nature, should be designed to protect both parties entering into a business agreement. With some basic knowledge and a few simple strategies, you can learn to utilize contracts to protect both you and your business.
Why are Business Contracts so Important?
A business contract is way to make sure you get all business agreements in writing. Verbal agreements can be legally binding, but are very hard—if not impossible—to enforce in court. You should insist on getting all business arrangements in writing so that both parties clearly understand and agree on their rights and obligations.
You May Not Always Need a Lawyer
A quick Google search will turn up multiple sources of online contract templates. For relatively simple transactions, the business owner may decide that only a template necessary, but it’s still a good idea to let an attorney review the template before relying on it—especially for more complex deals.
According to the U.S. Small Business Administration (SBA), what makes a contract legally binding is when an offer is made and the other party agrees—and something of value is exchanged. Many contracts can be short, straightforward, and easy to understand. And most of these types of agreements do not necessarily require the input of an attorney.
The SBA does recommend that both parties are aware of some basic state laws governing the business contract. For example, many states require that all real estate transactions be in writing. If you happen to do business with someone in another state, you may need to choose which state laws you will adhere to. A resourceful businessperson can find the answers to most of their state’s legal requirements online without consulting an attorney.
If you already have an attorney you work with regularly, it just makes sense to have them review final contracts. But if you routinely represent yourself in negotiations, you typically only need to consult an attorney when negotiations get heated, overly complicated, or hit an impasse.
Include All Important Information in the Contract
According to RocketLawyer, all business contracts should include the date of the contract, full names of the parties or entities entering into the contract, payment amounts and their due dates, contract expiration dates, and any damages for breach of contract.
It can’t be stressed enough that the contract be as detailed as possible and leave little-to-no room for interpretation. The contract should cover things like when and how payments are made, and when and how goods and services are delivered.
It should also include specific details about who pays attorney fees if there’s a dispute. You can also include a clause that requires both parties to enter into mediation or arbitration if there’s a conflict. And it should be clearly stated under what circumstances the contract can be terminated or nullified. For example, if one party doesn’t completely fulfill their obligations, the other party may want to choose to void the agreement without being in breach of contract.
Be as thorough as possible—leaving out even the smallest detail can cause problems down the road.
Keep the Language Easy to Understand
Just because it’s a contract doesn’t mean it has to be written in total legalese. Both Nolo and RocketLawyer recommend writing contracts in a clear and straightforward language. Consider labeling and numbering each provision so that the document is clear to both parties, and both sides can easily refer to the provisions.
Read the Contract Carefully Before You Sign
When you sign a contract, you’re agreeing to all the terms outlined in the contract, so make sure you read every single word carefully—and understand exactly what you are agreeing to. And when you do sign the contract, Bloomberg Business strongly suggests you sign it using the name of your business, and not your personal name. Signing a contract in your name can potentially put your personal assets at risk.
Consider Confidentiality Clauses
There is a good possibility the other party will be privy to sensitive information as a result of doing business with you, or there could be terms in the contract you do not want shared. If you’re sharing information that you want protected, adding a confidentiality clause to your contracts may be a good idea.
Remember that the whole point of a contract is to state the terms of an agreement clearly and in writing, with the goal of protecting both parties. Taking the time to learn how to read, write, and understand basic business contracts can help save you money on legal fees—and also help you protect and grow your company.