Contract Terms Checklist

Small business owners deal with many types of contracts every day in their business interactions. Business relationships often demand binding agreements, an exchange of confidential information, and some knowledge of business law.

A legally binding contract has several necessary elements:

• An offer (a proposal to be bound by certain terms)
• Acceptance (agreeing to the terms of the offer)
• Parties who have the legal capacity to contract
• Lawful subject matter
• Mutual agreement (all parties must agree on the terms)
• Valuable consideration (referring to an item or service being exchanged which could be goods, money, or a promise to perform a certain act)
• Mutual obligation (all parties involved have some obligation or duty under the contract)
• A written agreement (oral contracts are valid contracts but oral agreements are hard to enforce because it’s difficult to prove the contract terms if there’s a dispute)

Although all business contracts are different, there are certain contract provisions that are commonly included. That being said, not all of these provisions will be included in every business agreement. In addition, most contracts will include additional provisions that relate specifically to their particular subject matter.

Here we will focus on what clauses are necessary to form a written contract.

Common Types of Business Contracts

There are several common types of business contracts that people enter into every day. These include:

• Contracts for the sale of goods
• Employment agreements
• Consulting agreements for freelancers and independent contractors
• Non-compete agreements
• Non-disclosure agreements
• Real estate agreements
• Joint venture agreements

Contract Terms Checklist

This checklist serves as a general guide to what terms of the contract may be important to include, or at least consider, for your business contracts.

Please note that the following checklist is provided for informational purposes only. It is intended to be used as a guide prior to consultation with an attorney familiar with your specific legal situation. This checklist should not be considered a substitute for the advice of an attorney. If you require legal advice, you should seek the services of an attorney.

• Identity of the Parties: Detail whether the parties involved are individuals or business entities. If businesses, specify what type, such as partnership or corporation. Be sure to include the address of each party to the contract.
• Contract’s Purpose and Assumptions: Clearly define the reason for the contract agreement and any assumptions underlying the agreement.
• Contract Terms: Explain the duties of each party, the rights of each party, deliverables, relevant dates, prices, quantities, and payment terms. Payment terms should include a description of lump sum payments, COD, or installments.
• Warranties and Disclaimers: Mention any promises about the product/service quality. Consider disclaimers about potential issues.
• Limitations and Liquidated Damages: Limitations on liability cap the amount a party may have to pay if there is a breach of contract. Liquidated damages are a pre-agreed amount to be paid in case of a breach of contract.
• Confidentiality and Indemnification: Confidentiality terms help protect sensitive information. Indemnification clauses outline who bears the cost and responsibility of potential damages or losses.
• Default and Arbitration Clauses: These explain available alternatives to litigation if there is a dispute or a breach of the contract terms.
• Governing Law and Venue: These specify which state’s law governs the contract and has jurisdiction over lawsuits.
• Entire Agreement: This is a statement that the legal document constitutes the entire agreement.
• Severability: This clause allows the rest of the contract to remain valid if a court rules that a particular clause is invalid.
• Signature Block: These are signatures of authorized signatories and include official titles and addresses of the parties. If signing on behalf of a Company, be sure to do so appropriately so that you are not personally obligated/liable to the terms of the agreement.
• Notarization: In some cases, notarization is required to verify the signatures on the contract.

Digital Contracts

Electronic documents and signatures have become increasingly common. Laws, such as the Electronic Signatures in Global and National Commerce Act (E-SIGN Act), allow the use of electronic records to satisfy any law requiring that information be in writing. Of course, the law requires consumer consent.

It’s crucial to ensure these contracts are just as legally binding as traditional ones. Make sure they contain the necessary elements of a contract and are signed by all parties involved, even if the signature is electronic.

Some states may have their own requirements for electronic contracts and signatures.

Check FindLaw’s Contract Law and Contract Templates Sections for Additional Articles and Resources

• When Will a Promise or Statement Be Considered a Binding Contract?
• What Is the Most Common Legal Remedy for a Breach of Contract?
• Do All Construction Contracts Have to Be in Writing?

Learn More About Contract Terms by Speaking to an Attorney

While it’s important that you understand the legal terms and conditions included in any legal document you draft or sign, sometimes it takes the expertise of a business lawyer to interpret legalese into plain English. A misused or misspelled word, for example, has the potential to entirely change the meaning of a contract. Reach out to a local contracts attorney to learn more about legal services that include drafting and interpreting your business’s contracts.