Do you need to learn the business contract basics? Do you want to know how to create business contracts to ensure the security of your business? Do you want to make sure that your business contracts have all the needed information?
Since the coronavirus shook the world, businesses had to shut down and the economy fell. However, people still found ways to open businesses that matched the pandemic’s needs. If you’re starting your post-pandemic business, this is the time to learn how to make a business contract.
This guide will teach you how to write correct business contracts for your business. Keep reading to learn more about what business contracts contain and more. Below, we also included explanations about the important details you need to include.
1. What Is a Business Contract?
A contract is an agreement or set of promises that binds two more parties legally. This means that the law can and will enforce the agreement. If one of the parties doesn’t keep its promise/s, the other party has the right to enforce benefits.
A business contract is a more specific term for legally binding agreements created between business partners. It is typical for the parties to exchange money for a service or product. Some may invest time or money in exchange for sharing the profits of a business undertaking.
With that said, you enter a business contract every day. When you enter a grocery store and pay for your goods, you enter a legal contract. You gave the establishment money in exchange for your groceries.
2. Parts of a Business Contract
Your business contracts must contain several key elements. These elements help ensure that all contents of the contract will legally bind you and the other parties. The elements will also ensure that all the necessary details get written down. This is to make sure that one party can take his rights when the other party doesn’t stay true to his word.
Parties
The first part of a business contract must state the parties involved. It needs to include the names of the payee and the payer. Whether the payee is an independent representative or business owner, his name must be on the contract.
Terms of Agreement
After you establish the details of the parties involved, write down the agreement. It will state the values exchanged between the parties. Often, you only need to put it down in one or two sentences. Others may refer to it as the “consideration”.
The agreement only needs to be in one sentence, so it will lack a lot of details. Don’t worry about that because all those details will get written down in the terms section. This is where you get into the specifics of the expectations and limitations of the contract.
This is where you write down the details of the payment, the period the services will last, and others. You can also include whether the contract is cancellable, what happens then, and how.
Consent
This is the part where the parties place their signatures. This is where the parties show that they agreed to all that’s written down above. When you place your signature, always remember to write the date that you signed the contract.
Others may also break this down into the:
- Offer
- Goal to create a binding relationship
- Considerations
- Acceptance
Remember that there isn’t a limit on how long each element needs to be, even the agreement. However, you don’t want to make a fifteen-page business contract for a simple sale. Be reasonable and objective about what you write down.
3. What to Consider When Entering Business Contracts
There are some considerations you need to have before you enter a business contract. First, you must make sure that all parties are competent or of sound mind. That means that none of the parties can be:
- Minors
- Under the influence of drugs or alcohol when signing
- Have mental deficiency
If one party isn’t competent, the contract isn’t a valid one. The non-competent party can disavow the contract, too.
If a party has issues with the terms of a contract, that party must never sign it. Remember, once you place your signature, you’re saying you agree to everything on it. This is why it’s important to read and understand a business contract before signing.
Even if you are a small business owner, you need to know that writing contracts are essential. There are a variety of contracts small businesses need to use. Learn what they are so you can hold other parties to their promises, like partner businesses.
Always avoid entering verbal contracts. Their existence can be hard to prove, especially when you enter a legal battle. Written contracts are clearer for the parties since they contain the needed details.
4. How to Draft a Business Contract
Let’s discuss how to use a business contract as well as how to write a draft for one. Before you start, consider the state laws that govern the contract. You may also want to speak with a lawyer later to make sure your contract is enforceable.
Start your contract draft by writing down the names of the parties involved. You can include the places of business of each party. From here, move on to detail the agreement and the type of partnership you’re looking to make.
When you write a contract, make sure that all parties understand the language and terms. You can use plain English and avoid legal jargon as long as both parties understand what’s written down. Keep the details as specific as possible and with little room for interpretation.
When you write your contract, always write the specifics of the payment details. You may also want to consider confidentiality. If so, include a clause that binds the other party from disclosing your business information to other parties.
When you write a business contract, always add the terms on how to terminate or end a contract. Finally, add your digital signature. Click on the link to learn how you can create your digital signature.
Protect Your Business
That is the end of our Business Contract 101 guide. We hope you learned the fundamentals of business contracts and get why they’re important.
Of course, a contract is only the beginning. You’ll need to learn how to market and other business tactics in order to survive. The good news is we’ve got a library of content to help you out so don’t hesitate to continue reading!