Business owners often sign contracts with other parties for the sake of their entrepreneurial ventures. Deals and contracts are typical when you are operating a business. Every transaction with a client, supplier, and creditor involves some form of written agreement to become binding.
If you have a business, you will encounter the need to create a contract. It is a formality to have one to signify that you and the other party have settled on the same terms and have made a promise to fulfill what is written in the agreement.
Why is there a Need for a Contract?
Contracts are necessary when you have a business for many reasons. These reasons are:
- People may misunderstand parts of the agreement. Oral agreements are often vague because one or both parties may misunderstand some parts. Written contracts are better when it comes to business deals because every detail of the deal is already written. This document helps avoid any misunderstandings and conflict.
- People are capable of lying. There are times when people lie, particularly if they stand to gain something from it. Honesty is essential when it comes to business deals, but there are times when the parties lie to get an advantage over the other. However, this kind of situation may be minimized by a written agreement.
- People tend to forget their obligations. When deals extend and run through the years, both parties may not remember some of their commitments to one another. With a contract, those involved in the agreement may refer to it in case they forget some of their obligations.
- There is a need for transparency. Transparency is essential when it comes to running a business. Being honest with your customers, creditors, and business partners is crucial. Creating a contract is a great way to be transparent with other companies that deal with you because everything that they need to know is in the said contract.
What Should You Consider when Writing a Business Contract?
A business contract is legal and binding. Therefore, you must be careful in drafting and writing one. These are some of the considerations when you create a business contract:
- Determine if both parties are allowed to enter a contract. There are instances when a business or company is not legally able to participate in an agreement. Ensure that the two of you are can enter a business contract legally, so it is binding. Some factors that prevent one or two parties to close a contract include:
- Coercion or threat.
- The person is mentally impaired.
- The person is still a minor.
- Indicate those involved in the agreement. The business contract must specify who is involved in the agreement. The contract must indicate that only two parties are included in the deal. No third party should intervene during the execution of the contract. This clause helps prevent people who are not part of the contract from participating.
- Your business. Indicate your business, the nature of your business operations, address, and contact details.
- Another party. Specify the complete business name of the other party to avoid confusion. The contract must also include their business nature, address and contact information.
- Enumerate the duties and responsibilities. Duties and responsibilities of both parties must be listed in the contract. Specific responsibilities may include the process of providing a service in exchange for compensation.
- Client and supplier relationship. If your company is a supplier, you must deliver the products that are expected from you. You must meet the deadline as stipulated in the contract. However, if you are the client, you must make sure that you pay your supplier on time.
- Business partnership. If you and the other party enter into a business deal or a partnership, you must include the duties and responsibilities of each party. State your responsibilities and what you can offer that can contribute to the new venture’s growth. The other party must do the same.
- Establish a timeframe. Timeframes are essential when it comes to business contracts. Include the following in your timeline:
- Commencement. Specify when the deal should start so both parties can perform their duties at the same time.
- Duration. The duration is vital so the parties involved are aware of how long the contract lasts.
- End date. The end date is the deadline of the contract. Once the agreement has reached its end, parties may choose to extend or renew the contract.
- Renewal. The business agreement must also include how the renewal process should be done. It must state the terms of how the renewal should be made.
- Include the preferred payment method and schedule. Payment terms are essential; it helps the parties know what the preferred method of payment is.
- Bank transfer or deposit. Payment methods may be in the form of an online bank transfer or a bank deposit.
- Scheduled payments. One party, usually the supplier, may require the other party to pay a certain amount as a down payment, also known as a deposit. A down payment is usually needed so that the supplying party has security and a mobilization fund. Indicate if the payment can be deferred or paid in a series of installments.
Before you finalize anything, it is crucial to review every detail of the contract. Make sure that everything you need to know about your agreement is in the document. You’ll thank yourself later. You may click here to learn more about how a lawyer might be able to help you in this scenario.
Cindy Dowling, part time writer who offers a fresh take on various law topics with the pieces she writes for local firms. Cindy enjoys a good cup of coffee and a good book whenever she has the time.
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