A well-drafted contract is essential for protecting your interests and avoiding future disputes. Understanding how to draft a contract is a valuable skill for business owners. The ability to craft a well-drafted contract can protect you if you ever have to go to court, and also helps you to avoid entering into an agreement that is not in your best interest.
Drafting a business contract can be challenging, especially for those unfamiliar with legal jargon and business terminology. The surface simplicity of contracts can be deceiving. Poorly drafted or negotiated contracts can be a legal minefield, especially if your business relies on a lot of form agreements. Your safest bet may be to review and negotiate the terms of every contract when you enter into a new business agreement.
Here are some tips on how to draft better business contracts.
Defining and negotiating the terms of a contract
The terms of a contract should include what both parties expect to receive in the deal and should be made in good faith. That means that one party is not attempting to coerce or deceive the other. The terms of a contract should be memorialized in writing. This is preferable to an oral agreement or a good old-fashioned handshake deal. If you have a written contract, it will make enforcement much easier if a dispute arises.
If a counteroffer is made, you can decide if you will agree to the counteroffer, or decline and counter with another offer. Many times, the negotiation of offers will continue until both parties agree to the contract terms. Whenever a counteroffer is presented, you should review the entire contract to ensure that all changes made to it are understood and what both parties intend.
Be specific: Use clear and concise language
Poorly defined terms are the primary source of contract disputes. You should know what your obligations are and the other party also needs to be aware of its expectations. Discussing the terms and ensuring all parties understand the definitions of those terms in the agreement before reaching an agreement can help avoid unwanted breach of contract allegations.
The terms of your contract need to be drafted with clear and concise language to outline the terms and conditions. This means you should avoid vague or ambiguous language that could lead to misunderstandings or disputes. This includes clearly outlining payment terms, including payment schedules, payment methods, and any late payment penalties. It would also be best if you defined each party's obligations and responsibilities under the agreement. This includes deadlines, quality standards, and any other relevant requirements.
Potential issues and how to address them
You know from experience that things sometimes go differently than planned. Contingency plans are critical to the smooth operation of your business, so your contracts should have contingency plans as well. You need to anticipate any potential issues that may arise and address them in the contract.
- Consider using a confidentiality clause. If you will be sharing proprietary information or trade secrets, then a confidentiality agreement is highly recommended to include in your agreements. This will ensure your sensitive information remains protected. If a breach occurs, you can bring a suit for breach of contract.
- Include a dispute resolution clause. It is important to detail how a breach of contract will be handled, including who will pay attorney fees, and whether you will require mediation of the dispute, arbitration, or litigation. If the dispute is to be litigated, it should state which legal jurisdiction the matter should be resolved in.
- Clause to terminate the contract. The term or length of the contract should be specified in the agreement, as well as what actions either party may take if either one should want to end the contract before the end of the term.
- Consider legal requirements. Ensure the contract complies with applicable laws and regulations, including consumer protection and privacy laws. Whatever type of contract you create, you must be sure that it has been established within the bounds of any applicable state or federal laws. If you do not comply with the law, your contract may not be enforceable.
Use caution when using templates or examples
Using templates and examples as a guide when drafting your contracts can be helpful to ensure that you include all the necessary terms and conditions, and avoid any common mistakes. However, if you do not understand the terms in the template contract, that can lead to unwanted disputes.
Many business owners are turning to Chat GPT to draft agreements. At first glance, Chat GPT seems like an appealing tool that can draft a contract without the need for an attorney. However, the tool is still a very long way from autonomously drafting contracts. The issue is that even though the output may look like a well-drafted agreement, you may not understand the terms of that agreement, and more importantly the terms in the agreement may not protect you in the way that you had hoped.
Ready to start drafting?
Drafting business contracts requires attention to detail, clarity, and an understanding of legal and business concepts. Each of these tips may require you to make many decisions and consider additional details to effectively draft a contract. Many contracts will also require additional clauses depending on the business the contract pertains to.
If you are unsure about any aspect of a contract you are drafting, it is best to seek legal advice from a qualified attorney licensed to practice in your state. By following these tips, you can be better prepared to create a strong and enforceable contract that protects your interests and avoids potential disputes.
Disclaimer: All information in this article is intended for legal information only and is not considered a substitute for legal advice. If you need legal advice, you should consult with an experienced attorney licensed to practice in your jurisdiction.
