In the previous article, we discussed what is a legal binding contract and what the necessary elements were. We discussed that you need offer, acceptance, and consideration for a contract to be considered a legal binding contract. Moreover, some terms and sections were mentioned that every contract must have in it. Today’s article, which is the second post of the Contract series, will teach you how to write a business contract for yourself. This post will focus on some very important terms that a business contract must have in it.
Keep in mind, different types of businesses will require different terms and sections. Today’s post will talk about some common and important sections that your contract must-have regardless of your type of business.
What is a business contract?
A business contract is a contract that defines the terms and rules of your business relationship with the other party. A business contract carries a lot of weight and importance because your future business dealings, the mood, and tone of your business arrangement will be heavily influenced, if not based on the business contract itself.
For this reason, every business owner, whether a small business, freelancer, or blogger, must know at least the basics about how to write a business contract that will protect their rights, their business, and safeguard them from potential problems in the future.
Why do you need business contracts?
Have you ever wondered if you really need a business contract? Maybe you don’t think you’re successful yet. Maybe you haven’t even made a lot of money, so you’re thinking to avoid a contract in order not to scare away the potential business or business partner.
If you ever thought this way, I want you to do something-STOP!
A business contract is something that you should have and implement from the moment you start operating, whether it’s with your potential business partner, vendors, shareholders, etc. A proper business contract will not only protect you and your interests, but it will also protect the other party. A contract must be fair and unbiased.
As a small business owner, you need business contracts because it lays down the terms of collaboration, partnership, joint venture and overall your working relationship. Each party knows what the responsibilities and obligations of the other party are because everything is clearly stated in the business contract.
The business and working relationship will be a lot smoother, with less drama if you clearly state everything in a business contract and have it in writing.
Just a little side note: even though oral contracts van be legal and enforceable, when it comes to business contracts, always have them in writing.
Having a business contract means that you have a definitive document in case something goes wrong in the future. You can clearly show what the terms and conditions were, what you and the other party agreed to, and what went wrong. Knowing how to write a business contract, or buying a business contract or contract template is your insurance against any future surprises.
What are the three parts of a contract?
In our last post, we discussed the three parts of a contract, which were offer, acceptance, and consideration. All three must be present to be able to form a legal binding contract. I am not going to discuss what each element is, as I did this last time. Simply visit the last post I linked to above and read all about how to create legally binding contracts.
A business contract is not an exception to this rule. Regardless of what kind of contract you’re creating or writing, you will need to have offer, acceptance, and consideration for all of them. Knowing how to write business contracts is paramount for you as a business owner.
Moreover, even if you don’t know how to write a business contract, you should at least know about the essential sections and clauses that the contract must have so that you can judge for yourself whether a contract you are signing is a good one or not.
Do I need a lawyer to write a business contract?
One of the most commonly asked questions that business owners ask is whether they need an attorney to write their business contracts, or whether they can do it on their own.
Both methods are viable and good options. However, one method might work better for one person, and another might work better for the other.
A simple answer to the presented question above would be “yes, you need an attorney to write a business contract for you.” However, just because it’s the simplest answer, it doesn’t necessarily mean it’s the only right answer.
Many business owners write their own contracts. As far as specific particulars of the business go, the owner or the one in charge will always know better what clauses they must have, what they are willing to make concessions on, what they are willing to negotiate and compromise, and what are some clauses and sections that they will not budge on.
This is a natural part of the business. The best way to create these business contracts is for the owner or manager to make a list of willing to concede, will compromise/negotiate, and will not negotiate sections. This will give a good starting point for the business owner or an attorney to work on the contract and make it as foolproof as possible.
Even though you do not need an attorney to write business contracts for you, having one to at least review your contract to make sure you’re not opening yourself up or leaving yourself open to liability is a good idea.
Even though as a business owner you can write down the important sections and policies for you and your business, you’re not trained to think about all the potential liabilities and loopholes that you might face. This is where the benefit of having an attorney write or review your business contract comes in.
Check out These Legal Policies and Resources for Small Business Owners and Entrepreneurs
Basics for how to write a business contract
Writing a business contract is similar to writing any other contract, at least when it comes to the basic steps. Here is what you need to be prepared for when writing your business contracts.
Get it in writing
Although oral contracts can be legally enforceable, it’s much harder to prove what’s been agreed to, what the terms are, and what went wrong. Generally, when dealing with business contracts, it’s best to get them in writing.
When contracts or at least the most important clauses are in writing, you have concrete proof of what’s been agreed to in advance. You can point out what went wrong, how the contract was breached, if it ever is, and be able to enforce your contract in court with more conviction.
Figure out the most important clauses for your business
Before you start writing your business contract, you need to figure out what the most important clauses or sections are for your business. Every business, regardless of its size or niche, has certain terms, conditions, and requirements that they are willing to negotiate on and certain things they are not willing to negotiate on.
Determining the lines where you as a business will compromise and negotiate and where you will not, is one of the most essential parts of writing your business contract because your requirements will determine how your contract is written.
Use language that you understand
Most people are used to seeing a lot of complicated legalese (legal jargon) in contracts. There are some commonly used terms such as “hereto”, “hereafter” etc. These terms and others like it in contracts are fine when they are used by attorneys because they are trained to use these terms, and not just use them for the sake of having them in the contract.
When you are writing your business contract, it’s best to stay away from complicated language that is just legal mumbo-jumbo to you. Instead, opt to use language that you understand, that does not confuse you and will help you explain your points and get your message across.
If you make mistakes because of the language you used in the contract, unfortunately, you’ll have only yourself to blame, and no legal recourse.
Cover all the possible outcomes
One of the most important roles that a contract plays is to predict possible and potential outcomes and address them in the contract when forming it.
This is the most powerful tool at the contract’s disposal-to protect you and your business from potential harm and liability. So when you are writing your business contract, do your best to think about all potential and likely scenarios that might come up with time.
This possible outcome situation is why many business owners prefer to hire an attorney to write their contracts or purchase a contract template to simplify the process.
Include a clause about confidentiality
As a business, you have private and confidential information that you might not want others to find out. Therefore, when writing and signing any sort of business contract, it’s a good idea to add a confidentiality clause in it.
This clause will serve to protect your trade secrets and any inside business information that you don’t want to be disclosed to others.
Include a clause about intellectual property
Every business, big or small, physical or virtual, has intellectual property that it needs to protect. For example, business name, content, designs, inventions, works of authorship, brand assets, etc. A properly drafted business contract should include a clause about intellectual property ownership and rights.
The business owns its own intellectual property, and this should be stated in the contract. If a business employee creates something within work hours with business resources, then that creation belongs to the business.
Moreover, all brand assets, content, designs and more are the intellectual property rights of the business as well. Others might have a temporary, limited, non-exclusive or exclusive license to use certain aspects, but the business owns it all.
Include clauses about Arbitration and Entire Agreement
For details about the arbitration clause and entire agreement clause read my last post where I discussed legal binding contracts.
Be sure to talk about the payment options and details
Any terms that concern payments and money must be put in writing and in great detail. Do not leave any of these essential terms ambiguous and open to interpretation. Clearly state the terms of the payment, how much and how.
Write down both parties’ obligations and duties
Specify what yours and the other party’s obligations and responsibilities are to each other in the written contract. Documenting in detail what each party is obligated to do, and what the expectation is of each other leaves less room for future “he said, she said” situation.
Moreover, when you state duties and obligations clearly, you have a basis for enforcing your contract and having recourse in case of a breach in contract terms.
Decide what the controlling law is going to be and write it down
If you’re writing your business contract, be sure to include a clause about the controlling state law. This gives you the opportunity to have all legal proceedings take place in your home state or country. First, it’s less expensive because you wouldn’t have to travel all the time. Second, you and your business will be in-home territory, therefore be more confident than anywhere else.
A business contract will have more clauses than just these. However, these are the absolute minimum sections that you should include in there when writing your business contract. Here is an additional resource for you to read to learn more about how to write business contracts.
Contract templates-what are they and how can they help
When it’s time to start thinking about legitimizing and protecting your business, and you need contracts, there are three options available to you:
- Write it yourself
- Hire an attorney to write it for you
- Get a legal template and customize it
The first two options we already discussed above, and they are pretty straightforward to understand. You may be wondering what is a contract template. Simply put, it’s a contract skeleton that is written by someone who knows what they are doing (preferably an attorney). This contract template will include all the necessary sections and clauses in there, including options clauses that will shield you from liability.
The templates, however, do not contain the details about the particulars of the business arrangement. This is the reason they are called templates because they can be customized for each person or business by reading the instructions and following them.
Purchasing contact templates from a reputable source is the best alternative to hiring an attorney to write your contracts. A contract template tends to be affordable for most businesses and people. It contains all the necessary language and clauses. So what’s left to do is to customize it to support the business purpose.
The advantage of using contract templates is that you’re not starting from scratch. Plus, the points that you need to be present in the contract to protect you and your business are already there. All you need to do is customize the professionally prepared legal template and make sure that it covers everything you need.
Contract templates are helpful because they are fully drafted, except for the customized fields, they make the process faster, and purchasing templates is more affordable than hiring an attorney (It’s also better quality than drafting them yourselves).
There are many sites that sell templates for you to purchase, not counting that there are many sites that offer them for free.
But beware, not all templates are created equal. If you are going to go the template route, it’s best to get them from an actual attorney. Many contract templates are sorely lacking and will leave you open to liability without you realizing it.
In case you didn’t know, I am a licensed and practicing attorney. I have a legal shop where I offer contract and policy templates that have been created by me personally. I upload new templates on a regular basis. If you’d like a specific contract that’s not available yet, just let me know. You can check out my legal shop here.
Knowing how to write a business contract or at least learning some of the required and recommended clauses in business contracts can only help business owners to protect themselves and their business assets.
As a business owner, you have three options available to you when it comes to contracts: 1) hire an attorney; 2) write it yourself; or 3) purchase a contract template.
A business contract has multiple uses and purposes. It can protect you and the other party from liability, it can clarify the situation so that each contracting party will know exactly what’s expected of them in return for what, and more.
If you enjoyed this post, comment and share it with others. Also make sure to check back for another article on contracts, this time I am going to discuss how you can negotiate contracts to get exactly what you want.