How to Write Effective Business Contracts
Business contracts are legally binding written agreements between two or more parties. They are an important part of business and such agreements need to be created and/or reviewed carefully.
While smaller companies often conduct business based on informal handshake agreements or unspoken understandings, the more that is at stake, the more essential it is to have a signed contract. A contract serves as a guide and a memorial of the agreement that must be followed by both parties. It presents each party with the opportunity to:
- Describe all obligations they are expected to fulfill
- Describe all obligations they expect the other party or parties to fulfill
- Limit any liabilities
- Set parameters, such as a time frame, in which the terms of the contract will be met
- Set terms of a sale, lease, or rental
- Establish payment terms
- Clearly establish all of the risks and responsibilities of the parties
A contract is, in essence, a written meeting of the minds. While it is typically drawn up by one party and favors the needs and requirements of that party, protecting them from most (if not all) liabilities, it should be thought of, initially, as a work in progress that changes and grows as each party contributes his needs, wants, and terms prior to signing. At this time, it becomes an official document. It is the testament of a mutually beneficial relationship or transaction. Consideration, whether it is monetary or a promise to do work or provide a service by a specified date, is at the root of a contract. It is required for a document to be considered a valid contract.
