How to Write a Business Contract

Every new business venture starts with business contracts. A business contract is a legally binding agreement between two or more parties. The goal is to have agreements that set clear expectations. This means all parties understand and agree to the arrangements, obligations, and responsibilities detailed in the contract.

You have to handle business contracts almost immediately. When you start a business, you’ll need customer service agreements, lease agreements, vendor contracts, etc. Hence, my first bit of advice, to any budding business entrepreneur, is to invest time and some dough to find a good attorney. One that is familiar with contracts and your business. Trust me this could save you lots of grief, and money, and potentially save your business!

Let’s dissect a business contract to introduce main components of these agreements.

WHO

• Parties in the agreement
  • Define who is entering into the agreement (give legal name, title, company, contact info., etc.)

WHAT

• Intent or Terms of the agreements
  • Who performs what tasks
  • Time frame
  • Deliverables
  • Who is compensated for what, when, and how?
  • Who owns existing and future product or proprietary information created?
  • Include exhibits if needed.

WHEN

• Term 
  • State the length of time the agreement is be enforced, whether a year, specific date range, or ongoing.
  • What is the renewal arrangement of the agreement? Does it auto-renew annually without notification of termination or does it terminate and need to be resigned/rewritten after the term has ended?
• Termination
  • How can one or all parties can exit the relationship?
  • Is it a prearranged method, such as 30-day notice, or based on a breach of contract?

WHERE

• Jurisdiction
  • Location whose laws will be applied to govern the disputes or issues that might arise with the contract.
    • Select a jurisdiction that is nearby and has beneficial laws for the type of contract being signed.

HOW

• Breach
  • An act of breaking or failing to follow a contract.
  • What constitutes a breach?
    • Not paying in a timely manner
    • Failure to perform duties as outlined in the agreement
    • Etc.
  • How one can remedy the breach to avoid harm to their interests
  • How much time does one have time to remedy the breach
• Liability
  • How much would you owe or lose under a breach of the contract
  • What is your responsibility if you breach the agreement
  • What are the limitations of this liability so that you are also protected under an unintended breach (meaning you breach by mistake or not intentionally)

The last question, but the most important: WHY

I often refer to my contracts as “prenuptial agreements.” In the throes of negotiating contracts at the beginning of a long-term relationship, you are happy and excited about your future together. Nobody likes contemplating a divorce, but the best time to talk about it is when you still like each other and not after you are throwing things across the room at each other.

So, “why” you need a contract is to establish ground rules and explore all the “what if” scenarios, just in case things don’t work out as anticipated. Ask the tough questions NOW, not during the divorce or litigation! I found that if I had a good agreement and all the parties understood and agreed, then we never had to go back to it. And that, my friend, is the goal of any contract!