Business is done with contracts. Getting yours right is critical. Getting them wrong can be costly.
No matter what kind of business you run, well-written contracts protect your interests. Good contracts keep things running smoothly.
Would your contracts withstand court scrutiny?
Understanding how to write contracts that work can help you ensure yours will hold up if disputed. So, here are the basic dos and don'ts of writing solid business contracts.
Writing Solid Business Contracts
You, your clients, and your vendors should be able to rely on the efficacy of your business agreements. To ensure your business contracts are reliable and legally enforceable, here are some basic "do's."
Keep It Simple, But Specific
We've all seen contracts loaded with complex legal terminology. All the "heretofores" and "thereunders" make it difficult, if not impossible, for a layperson to understand.
Using flowery language in an effort to sound smarter can backfire. If your clients can't understand what the contract says, they may choose not to sign and to do business with your competition instead.
Be as specific as possible to avoid misunderstandings. Only use legalese if it serves to make the contract terms more precise or clear.
A Handshake Doesn't Protect You
Under South Carolina law, certain contracts must be in writing. Agreements involving wills or trusts and contracts in the realm of real estate law must be written to be enforcible.
Although some simple contracts can be oral agreements, it's difficult to enforce them should there be a dispute. Well-written contracts help prevent misunderstandings.
Be As Specific As Possible
Vague business contracts serve no one. The more specific your contracts are, the less room you leave for misunderstanding. Include as much detail as possible. Use precise terms.
Specify all payment terms and delivery or service dates and deadlines in detail. State clearly who is paying what to whom, and when they must make payment.
Likewise, describe in detail the service, product, or item that is being purchased. Include when and how the service will be performed, or the customer will receive their purchase.
Don't leave anything open for interpretation or misinterpretation.
Correctly Identify All Parties
Like all legal agreements, business contracts must be clear about who is obligated to provide the goods or services to whom. It must also be clear who will pay for those goods or services.
So, you must use the correct legal names of the parties to the contract. If you are doing business with another business, use the full name of that business (including any Inc. or LLC) in the contract.
Don't use the names of the people signing the contract. They aren't responsible for fulfilling the obligation. Their company is.
Capacity and Duress
A legal contract requires that anyone signing it must have the mental capacity to do so. That means they must be free from mental incapacity and sober. Otherwise, the agreement isn't enforceable.
Likewise, everyone signing a contract must be doing so of their own free will. Financial or emotional coercion nullifies the deal.
Contract Termination and Dispute Resolution
Sometimes the terms of a contract can't be met by one party. Sometimes the deal can't proceed because of, or the deal is halted by an outside influence. So, it makes sense to include circumstances under which the contract can be terminated.
Include a section that states specifically what you and the other party can and will do if you disagree about the contract's terms. Will both parties agree to go to mediation or arbitration before taking the dispute to court? Write it into the contract.
Say Which State's Laws Govern the Contract
If you're doing business in South Carolina, your contract will be governed by South Carolina's laws. Specify that in your business contracts. This is especially important if you do business with clients or vendors in other states or countries.
You may also choose to specify where you will mediate, arbitrate, or bring a legal action under the contract should a dispute arise.
Contract Mistakes to Avoid
Just as there are certain details that you should do for every contract, there are other things you should never do. These not only weaken business contracts; they can also cost you.
Using Ready-Made Contract Templates
There's no denying document templates have made many business functions easier. But when it comes to business contracts, ready-made templates are risky.
Your business is as individual as you are. You have your own business practices, methods, and goals. The one-size-fits-all contract template doesn't account for all the details that make your business unique. Consequently, it may not protect your interests if a dispute arises.
Promising the Moon
It should go without saying that you should never promise more than you can deliver. You also shouldn't agree to pay more than you can realistically afford.
You should be certain you can honor the terms of your business contracts before signing them. That includes clearly defining the scope of all obligations and any applicable deadlines. Then stick to the contract terms.
Negotiating with Subordinates
If the person you are negotiating with doesn't have the authority to sign the agreement, you're speaking with the wrong person. Don't waste your time negotiating with a subordinate.
You should insist on negotiating with the person who has the authority to sign the contract. Often that is the owner, president, or chief executive officer.
Business contracts signed on behalf of a corporation by someone who doesn't have enough authority to make the agreement can't be enforced. Protect your interests by negotiating with the right person.
Skipping the Lawyer to Save Money
It may be tempting to try to write your business contracts yourself. But that could be a costly mistake. To adequately prepare business contracts, you must fully understand the legal and regulatory environment of your industry and location.
Remember, lawyers must know the precise meaning of the sometimes obtuse legal terms that pepper many business contracts. If you don't understand the legalese, an attorney specializing in business law can explain it to you and ensure that the contract works for you.
Safeguarding Your Business Interests
When it comes to protecting your business interests, you can never be too careful. No matter how thoroughly you've reviewed your business contracts, it's a good idea to have your lawyer review them.
Our contract specialists are here to help ensure your agreements work for your business. We can help with business contracts, trademarks, mergers and acquisitions, business formation, real estate law, and other business law issues.
Contact our business law experts today. Let us help with your contracts so you can focus on your business.