What to include in a business contract

It can be difficult to know what to include in a business contract, but it’s important to understand the right components so that the ones you send are valid.

This article will detail contract basics and explain what absolutely should be included in a business contract for it to be useful and legally enforceable.

The difference between written and verbal contracts

It’s pretty clear by their names, but written contracts are recorded in writing and verbal contracts are spoken agreements that are not written down. A verbal contract, also known as an oral contract, can be equally legally-binding as a formally-written contract if the correct procedures are followed.

So, if verbal agreements can be just as legally valid as a written one, then why does anybody bother going through the effort of having contracts in writing?

Why can’t a conversation and a handshake suffice for business deals?

Well, verbal contracts are often hard to prove legally.

Why you should use written business contracts?

The biggest reason for any written business contract is to prove an agreement exists in case something goes awry. For instance, there may be an argument between you and the other party. If the agreement was a spoken agreement, then how would anybody prove their side of the argument?

In another situation, one party may simply forget what the exact terms are. It’s also possible that one party may genuinely misunderstand some of the original terms, or one of the parties may go out of business mid-contract.

In any of these situations, a written contract would give everyone involved the security and confidence to carry out their obligations. If any disputes did arise, a well-written contract should allow them to be resolved quickly and professionally and help you maintain a strong business relationship.

What to include in a business contract

All the parties

Every individual or entities that are a part of the contractual agreement need to be named on the contract. For instance, if a homeowner wants to hire an independent contractor to construct a conservatory, then both the homeowner and the business information of the builder need to be included.

Some form of consideration

In a contract, consideration is the explanation of something of value being gained by each party. In the building contractor example, the consideration for the homeowner would be the completed conservatory and the consideration for the builder would be the fee they receive when completing the project.

A legal purpose

There must be a legal reason for a business contract to be legally enforceable. For instance, you couldn’t have a contract hiring someone to rob a bank for you, as this act is illegal. Likewise, the payment cannot be illegal either, so you couldn’t pay for a service in stolen goods.

Competence

All parties involved in a business contract must be deemed competent, or mentally stable when the contract commenced. Being under the influence of alcohol or drugs can void a party from being deemed competent. Anyone who is a minor at the time of making the agreement is also classed as incompetent, as they may not understand the obligations of each party.

Terms and conditions

This is where the obligations and rights of everyone involved in the agreement are specified. These are likely to be different for every business agreement, but usually involve things like exact payments, scope of work, and timeframes for payments. There may also be details about how to resolve any issues when it comes to a breach of contract.

Signatures

For written contracts, it is strongly advisable that everyone signs the agreement. This isn’t a legal necessity, but it does help to prove that each party agreed to the specified terms of the contract and makes it more enforceable.

Electronic signatures and physical signatures are both legally acceptable. The more traditional format is physical, although this method can be quite impractical when multiple people are signing. Using specialized apps like PandaDoc and DocuSign, everyone has the ability to add their signature with a single click.

This eliminates the need to print, sign, scan, or email contracts for signing, and is far more efficient. Such apps also have additional functionality to expedite and improve the contract process. PandaDoc, for example, gives users the option to build legally-valid contracts from templates in just minutes. Users can also easily send contracts to multiple recipients and even track the document status from within the app.

Always understand your business contracts

It’s always worth taking the time to understand any contracts you come across in your business life, no matter the size of your business, big or small. By understanding the basics, you can ensure that everything you send and sign is legally valid. Just remember that if you’re in any doubt about a contract, you should enlist the help of a contract lawyer for legal advice about your state’s laws to be safe.