When running a business, it is important to understand that all agreements need to be governed by a contract. Having a contract in place is essential, but not all contracts are created equal. Whenever writing a contract, or having one written, make sure you have each of the following essential components to avoid problems down the road.
Despite what you may see on television shows, contracts should use very clear language whenever possible. While there are some limited cases when “legalese” needs to be used, the majority of the contract should be written in a way so that the average person can read it and understand what the requirements of all parties will be.
Identify Involved Parties
Every contract should clearly identify all the parties involved. This includes individuals as well as businesses. Using the full legal names of everyone mentioned in the contract will help to avoid misunderstandings or confusion down the road. In addition, contracting through the appropriate entity can help prevent “piercing the corporate veil” (i.e., attaching personal liability to someone for a company action).
Detailed List of Responsibilities
The roles and responsibilities of everyone involved in the contract should be clearly laid out. This includes what each party is responsible for, when they should have it done, and in many cases, how it will be handled. In many contracts it can be helpful to include information on what happens if something is not completed or is delayed.
Any payments that need to be made should be clearly identified in the contract. This includes the amounts of money that will need to be paid, when the payments will take place, and how the payments will be made.
Termination of Contract
Detailing what events will result in the contract being terminated should also be listed. Ideally this will occur when all of the agreed upon work is done and the payments have been made. It is good to also include the steps one or more parties must take in order to terminate the contract early as well.
Even if you don’t have an attorney write up the contract, it can be helpful to have one review the contract before it is signed. This can help you avoid problems and ensure there is nothing missing. Please contact us today to learn more!