One of the basics in business is the need for contracts, regardless of your industry. You may create contracts with vendors, partners and even customers. You want the contract to be fair, enforceable and beneficial for both parties. Here are some basics to know before you sign any contract.
1. Put It in Writing
No matter what you agree to orally, you’ll have a hard time proving your case unless it is in writing. While some oral agreements are binding, they are often difficult to enforce. Make sure you spell out the terms clearly and simply to avoid misunderstandings and misinterpretations.
2. Use Correct Identification for Each Party
Make sure you use the correct legal names of each person involved in the contract as well as their titles or positions. This includes the business. If it is a corporation or LLC, you will use this name and the suffix instead of the people who are actually signing the document.
3. Be Thorough
While you want to keep the contract as simple as possible, you also want to ensure everything is listed. Basically, if it isn’t in the contract, it doesn’t matter. You will have a hard time enforcing any terms not included. If something is forgotten and you notice it as you’re reading it before signing the contract, you can hand-write it in. All parties must initial the change to make it a binding part of the contract. If you notice something missing or that needs to be changed after signing, you can have it added as an amendment.
4. Include Payment Obligations
Be specific on when and where payment is to be made as well as how it should be handled. If payment involves installments, include dates, amounts and other specific details. You also want to include approved payment methods, such as whether it must be cash or a check or another form of payment.
5. Include Termination and Dispute Details
You should also ensure the contract has details on how it can be terminated as well as the method used to resolve any disputes you have. For instance, mediation or arbitration are common options to avoid the cost of court. Details about terminating the contract ensures neither party unknowingly breaches the agreement. If one of the parties is located in a different state, you’ll want to select a state law in one of the states which will govern the contract. This helps to avoid any issues or confusion later.
While these steps are important for creating a contract, it’s also helpful to review them when you’re signing a contract someone else has created. You want to ensure all of the details are spelled out clearly before you sign to reduce the likelihood of problems later.