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Do's and Don'ts: Contracts Terms

Contracts are important to a business owner's or business partner's responsibilities. Business contracts are legally enforceable business deals between two or more parties. There are many types of contracts, including photography contracts, construction contracts, and loan agreements.

While some business contracts may be as simple as a verbal agreement or a purchase order, others are not. Service agreements, rental agreements, non-disclosure agreementsnon-compete agreements, and employment contracts are much more complex and involve higher stakes.

Below are suggestions for what to do (and what not to do) when drafting or signing a contractual agreement.

The Do's

  • Do demand a written contract. A written document prevents confusion about the parties' obligations. Oral agreements are valid legal contracts but are challenging to prove in court if there is a dispute.
  • Do start with a contract template as a guide. Adapt it to your particular situation. Findlaw has several contract samples and business contract templates that you can consult for ideas.
  • Do title the document "CONTRACT." There can be no mistake about its intent.
  • Do identify the parties correctly in the first paragraph. Make certain names are spelled correctly and addresses are accurate.
  • Do include the date in the first paragraph. That makes it easy to refer back to after contract execution. Also, the contract can later be identified by date, such as "the Nov. 20, 2001, Contract for the Sale of Goods."
  • Do use common-sense headings. This makes it easier to find particular provisions in the contract.
  • Do number the paragraphs. For ease of reference.
  • Do use plain language whenever possible.
  • Do define all technical terms. This is especially important in legal agreements dealing with confidential information and intellectual property.
  • Do consider the placement of punctuation marks. Even a misplaced comma can change the meaning of a sentence.
  • Do carefully review the use of conjunctions. Especially "and" and "or," since the word you choose can dramatically impact meaning.
  • Do clearly explain important details. Like deliverables and scope of work, especially in consulting agreements, sales contracts, and service contracts.
  • Do ensure the contract addresses all possible contingencies. Leave nothing to chance.
  • Do explain payment details. This includes payment terms, late payments, the payment schedule, and acceptable payment methods.
  • Do check state law for any requirements relevant to your business deal.
  • Do have your attorney review every contract before you sign it.
  • Do ask your attorney any questions you may have about the contract. Remember, there is no such thing as a stupid question, but it can be stupid to let a question go unanswered and pay for it later.
  • Do sign in blue or other colored ink to make the original easily distinguishable from photocopies. If you're signing on behalf of your organization or business, sign your name and ensure your title and business name appear under your name.
  • Do initial every contract page and ensure the other party does the same. So that nobody misses anything.
  • Do include notarization if required by applicable law.
  • Do keep a copy of the contract for your records.
  • Do make sure that business agreements with independent contractors and freelancers clearly state that they are being hired as independent contractors and not employees. This is crucial for tax purposes.
  • Do make sure that if you offer a warranty, spell it out in the contract. Such as in a subcontractor business agreement
  • Do make sure that contracts with service providers set expectations for the quality and standards of work.
  • Do make sure that when entering into a binding contract on behalf of your business, the signature block includes your name, business title, and business name.

The Don'ts

  • Don't include legalese or archaic phrases. Phrases like "the party of the first part." "heretofore," etc., add little clarity to legal documents.
  • Don't include overly long sentences. Break sentences down into easily digestible thoughts.
  • Don't be repetitive unless it is necessary. It is easier to refer to a previous provision according to its number or heading rather than to repeat it verbatim.
  • Don't assume the other party defines terms the way you do. If there is any doubt, include a definition in the contract.
  • Don't read the contract over hurriedly. Understanding all the possible nuances of the language used takes time.
  • Don't accept the other party's oral explanation of a confusing term. Make sure everything is in writing.
  • Don't start acting according to the terms of the contract until both parties have executed it.
  • Don't agree to change the contract unless the changes are in writing.
  • Don't assume that using a form contract or an agreement template eliminates the need for your lawyer's review. Even if a standard contract worked well in one instance, changing circumstances, dates, or parties can change the whole equation.

Get an Attorney's Help Before Making a Contractual Agreement

Contracts come in many forms. They manage business relationships. It's unnecessary to consult with an attorney every time you or your business enters a contractual agreement, but sometimes it's crucial. Even one word out of place or a forgotten clause could cost your business dearly. A small business attorney can provide important legal advice. If you need help drafting a particularly complex or high-stakes contract, consult a small business attorney near you.

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