No matter its size, every business runs on contracts.
From employment contracts and sales agreements to the various types of legal documents required by operational necessity, this paperwork is critical to your financial success.
Unfortunately, these legal agreements can be overwhelming if you’re unfamiliar with them. That’s especially true when you need to write one for yourself or for your company.
In this article, we’ll walk you through the basics of how to write a business contract.
This article will guide you through all the details you should consider when writing a business contract.
Let’s jump in.
1. Determine why you need a contract
Before you start to create a contract or binding agreement, take a moment to determine the type of contract that you intend to write and why you need one.
Binding contracts are essential for business deals, but the type of contract you need to create will heavily impact the terms you’ll need and the language you should use.
For example, if you need to create an employment agreement, the terms of the contract will be vastly different from something like an intellectual property agreement or a sales contract.
Remember: Contracts exist to fully outline the nature and terms of a mutual partnership or arrangement.
Once you know the reason for the contract, you can take additional steps to further express the terms of the agreement.
You’ll also need to provide additional details regarding the nature of the work to be done and how to proceed if something goes wrong.
Set these guidelines clearly so that all involved parties are working from the same playbook in the event of a misunderstanding or disagreement.
Common types of business contracts
While a business might issue thousands of contracts over its lifetime, many of those contracts will fall into a few basic categories:
- Service and sales contracts. If your business sells a B2B product or performs a service, you’re likely to issue this type of contract. Sometimes, business contracts for services and sales are preceded by a proposal, which is negotiated into an agreement that everyone can sign.
- Employment agreements. Most businesses need workers and business partners in order to grow. These contracts and hiring agreements might stipulate work hours, job duties, termination clauses, and payment terms if you don’t have separate documentation set aside to cover those specific details.
- Independent contractor agreements. Planning to hire a freelancer or agency? Creating a contract for services from independent contractors can help you bring them on board quickly. Keep in mind that freelancers and independent service providers may have their own contracts set up for client onboarding.
- Non-disclosure agreements. Often, this is included as a part of the contracts your vendors and employees will sign, but it’s possible to create a standalone NDA for separate, individualized use. This agreement obligates the signer to retain confidential information for a set period of time.
- Vendor contracts. These will be common if you’re relying on external vendors for goods or services in order to create your product. This contract could stipulate the delivery of component goods, standardize the expectations around services performed, and much more.
There are other types of contracts out there that you might need, but most written agreements will fall into these basic categories.
Before you start writing, figure out why you need a contract, what purpose it should serve, and how it should fit into your business workflow.
And don’t worry about creating a written contract from scratch. Once you have a rough idea of what you need, start browsing templates that match your use case.
Take cues from existing formats and layouts that match the look and feel of the contract you need to create.
2. Define all applicable parties
Legally speaking, you’ll need to know exactly which parties are involved in any contracting deal.
When creating a contract for either an individual or an organization, take the time to collect all of the information before generating your contract.
Some essential details you’ll need to know:
- Legal name.
- Business address.
- Primary point of contact.
- Scope of work and related requirements.
- Deadlines and time limits.
- Payment details and terms.
While we’ll discuss the essential elements of a contract in the next section, you’ll need to make sure that all of the basic information is out of the way before you can even begin to generate your contract.
This is true regardless of whether you’re creating a lease agreement for real estate or a service agreement with a vendor partner.
You’ll also need to ensure that the individual signing the contract can function as a legal representative of the entity or organization that needs to sign your contract.
In the event that legal action needs to be taken due to a breach of contract, ensuring that the signer was authorized to do so can help to eliminate questions about the authenticity and intent of the contract.
3. Include all essential elements of a contract
While contractual agreements can vary greatly in scope, all contracts must be set up using a few essential elements.
These components are required for any legal contract, as they define the nature of the business relationship, the terms of the agreement, and the intent for both parties to operate under the terms of the deal.
In order to create a valid contract, you’ll need to include each of the following:
- Valid offer. One party must make an offer to another. Often, this is an offer for one party to supply goods or services to another.
- Acceptance. The offer must be accepted and agreed upon by both parties. If either party declines the terms of the offer, the contract can’t move forward.
- Consideration. Something of value must be exchanged for the contract to become valid. Often, consideration is money, but it can be anything of value, including real estate or goods and services of equal value.
Other elements to consider
While the above elements are essential to the contract itself, you’ll need to ensure that the following elements are also true.
- Mutuality or intention. It must be clear that all parties intended to sign the agreement and that they clearly understand that the agreement they are signing is legally binding.
- Capacity. The individuals signing the agreement must be of legal age and have the authority to enter into the agreement. For a contract to be valid, they also can’t be coerced or be a victim of undue influence.
- Legality. Contracts are automatically rendered invalid if the exchange of goods and services isn’t legal in the first place. A contract for the sale of illicit goods would not be protected under modern contracting statutes.
Whether you’re writing your own contract or reading through a contract you received, all the essential elements should be plainly visible.
All of these guidelines apply to oral agreements, as well. Unfortunately, it’s far more difficult to prove mutuality or intent with an oral agreement, which is why written contracts are highly recommended — particularly in business scenarios.
4. Select the appropriate governing law and jurisdiction.
When writing your contract, you’ll automatically be subject to any federal regulations.
However, state laws and local jurisdictions may interpret some parts of your contract differently, and you can add a provision to your contract that dictates which state’s laws will be applied to the contract.
This is called a “choice of law” provision.
For many smaller businesses, your choice of law provision will probably be the location of your home state or corporate office.
You can also decide the jurisdiction where disputes will be handled, and the jurisdiction can be different from the law that governs the contract.
For example, the jurisdiction for resolution could be in Texas while New York law governs the contract.
If you choose to include these provisions, make sure that you are familiar with the legal landscape before you decide.
Keep in mind that a court might overrule these provisions if they bear no clear connection to the deal or the parties involved.
5. Write everything in plain language
While complex legalese might be a favorite of lawyers and clickwrap agreements, it’s not required to create a workable contract.
In fact, overly complex language can be a roadblock to progress, since both parties must review and understand the agreement prior to signing.
With that in mind, when writing legal contracts for small businesses, use plain language that your clients and fellow business owners can understand.
Not only will this help to expedite deals; but it also adds a layer of transparency to your agreements.
Here are a few quick tips:
- Use clear headings to signpost key contract elements.
- Use simple language that is comfortable and easy to read.
- Use bullet points or bold text for important details.
- Use initialing tools to acknowledge essential passages.
- Use tables and charts for increased readability.
At the same time, using plain language doesn’t mean that your contracts need to be simple.
The terms of your agreement can still be ironclad, but customers shouldn’t need a step-by-step guide on how to read contracts in order to make sense of your legal documentation.
Always write with your customer in mind, and try to write something that would make sense to you if you wanted to reach an agreement between you and your own company.
6. Use repeatable language and formats when possible.
As we mentioned earlier, despite the number of contracts that you issue, the variety of contracts is likely to remain quite small.
Once you have a basic sales contract, a basic employment agreement, and other essential paperwork, it makes the most sense to create a document template and then recycle that contract in scenarios where similar action needs to be taken.
For example, if you close dozens of sales contracts on a weekly basis, using a template that already utilizes a standardized set of terms and agreed-upon language will greatly expedite the progress of your deal.
You can take advantage of this operational repeatability in a few separate ways.
The easiest way to create a repeatable document is by creating a document template. To do this, duplicate an existing contract and strip out all customer-specific information.
If done correctly, the template will contain all the standardized terms and conditions that you typically include in your contracts, but with the key details regarding your customer or any offer able to be filled in at a later date.
When it’s time to create a contract, you simply fill in all the relevant details and send the contract to its intended recipient.
This can be done even faster-using document variables inside a document builder. Simply change the name in the variable in one location, and the variable will update across the entire document.
An employment contract is a great use case for a contract template and variable.
In this scenario, [Job Title] is a variable. You’ll need to fill that in prior to having the employee sign the document.
However, the rest of the language is written broadly enough that it could apply to any job duty or position.
Aside from changing a few variables to make it relevant to a specific individual, this contract is ready to go.
Sometimes, you might need to include small addendums to a contract on an as-needed basis.
Creating small blocks of content that you can drop into a document at a moment’s notice can be far easier to manage than multiple documents that say roughly the same thing.
You can manage these in a spreadsheet or a Word document if you prefer.
With PandaDoc, you could use the content library to save everything from basic text snippets to full-blown formats and layouts.
This is a great option when you need to build complex documents or if you need to adjust an existing contract on the fly.
While this approach is more granular than a dedicated template, it provides a unique level of flexibility in control of the document creation process, and that can really matter when deadlines are tight.
7. Use tables, lists, and other tools
While you’ll need to use words to explain many of your terms and conditions, don’t forget to use other tools at your disposal when the opportunity arises.
Sometimes, a pricing table is more accurate and concise than a long-winded block of text. A numbered or bulleted list can make your document more approachable and easier to read.
A form can help you quickly capture and organize important information.
You could use these tools to quickly create any of the following:
- Proposals and sales quotes.
- Payment plans and installment plans.
- Bill of materials.
- Expense forms.
Because the inputs for the tables change, it’s best to set these up as flexible elements inside your document that can be easily adjusted.
Make sure that your tables can support additional rows when you need to add line items and that your formatting won’t break if the list is too small.
Use a document creation tool, to permanently solve this problem.
8. Include methods for dispute resolution, termination, and renewal
It’s never ideal when a job falls apart, but disputes and disagreements can happen when the scope of work is unclear or deadlines haven’t been met.
Your contract should offer clear guidelines to reach a resolution in the event that such a dispute arises.
While these matters can be decided in a court of law, it’s often better to rely on arbitration rather than proceeding to a lengthy and expensive court battle.
You can set most of this up as part of a termination clause, an arbitration clause (or a similar ADR solution), or an indemnification agreement.
However, you choose to do it, be sure that you have a clear path forward so that both parties know how to proceed in the event of a dispute that can’t be reasonably resolved.
On the other hand, if everything is going well and both parties are satisfied with the arrangement, having a path forward for easy renewal is a great way to retain existing partnerships.
In that case, you might want to consider having automated contract renewals or a renewal clause that allows for fast and easy renegotiation for an extended period of partnership.
9. Be specific regarding deadlines and payments
Without a doubt, payments and invoicing schedules are one of the most important elements of a contract.
When writing, use all the tools we’ve discussed so far to ensure that all parties know when payments are due, who should be paid, and how much they owe.
There is some flexibility here. Payment may be contingent upon hours worked, requiring your company to send an invoice. If your contract is set up by milestone, you may need to finish up an existing set of tasks before payment is released.
Remember: Consideration in exchange for services is an essential element of your contract. The payments listed in your contract should be directly related to the goods or services offered by the other party.
However, if you choose to up your operation, be clear about what should happen when those conditions are met.
The contract can also stipulate late payment fees and similar penalties for lack of payment. This can incentivize payments and work to be completed in a timely fashion.
If you choose to impose penalties for missed deadlines and late payments, take care to make clear what is and isn’t covered under such clauses and in what circumstances they are likely to apply.
10. Determine whether NDAs and non-competes are necessary
Confidentiality clauses and non-compete agreements have become standard fare in many employment contracts and business arrangements.
Before you decide to write a business contract including these components, take a moment to consider whether your contract should include one.
Most essential job roles won’t require a confidentiality agreement, and the rules around non-compete agreements can make them almost impossible to enforce beyond a very specific set of circumstances.
It’s very easy to write NDAs and non-competes that are overly broad or won’t withstand scrutiny when put to the test.
While there are situations where having this documentation is essential, it might be best to leave it out of your standard contracts unless you have a good reason to do so.
You might consider adding NDAs and non-competes as an addendum to your standard contract or as a content snippet that can be added when certain criteria are met.
Issuing this type of documentation as part of each and every contract could potentially damage the credibility of your claim in the event you ever tried to enforce it.
11. Use an e-signing platform for fast negotiations and signing
Proof of acceptance and the intent to enter into a legal agreement are two major factors in determining the validity of a contract.
While oral contracts can be legally binding, they are much harder to enforce due to these two issues.
The opposing party could simply claim that they never intended to enter into an agreement and, without a written agreement, the terms of their obligation become unclear.
Written contracts eliminate this confusion by providing all the details and stipulations of the agreement. However, you’ll still need proof of acceptance.
In other words, both parties need to sign the document.
Signing can be done using pen and ink, but you should consider using electronic documentation and e-signatures for the best experience. Digital documentation allows for a faster negotiation process.
Plus, if you’re using a document collaboration tool like PandaDoc, you’ll also have a list of changes so that you can see the history of the document and how it evolved over time.
E-signatures use technology tools to verify the authenticity of the signer and offer proof that your contract was signed by the appropriate parties.
These tools defend against repudiation, the denial that the contract was signed and that no deal was made, by offering the terms, the proof of signature, and evidence of the intent to enter into a contract.
Contract templates and examples
Looking for some inspiration when creating your own contracts?
PandaDoc offers over 750+ templates as part of our template gallery to help you get started!
And don’t forget to check out our community gallery, where PandaDoc customers have submitted top-performing templates that you can use.
Below, you’ll find a few of our favorite and most accessible templates.
Agency agreement template by Lantern
This short and simple deliverable agreement allows sales reps to quickly assess what needs to be done for a client and offer recommended solutions.
The agreement relies heavily on a pricing table, which details the selected work, the quantity, and the estimated cost. Behind the scenes, PandaDoc users can take advantage of the product catalog to quickly add items to the table.
At the bottom, you’ll see a place for signatures, specifications for the parties involved, information about payment schedules, and details regarding the nature of the agreement.
It’s a simple and compact document with all key details clearly indicated.
Video marketing plan template by Creative Haven
This is a video marketing proposal aimed at food companies and features in-depth details regarding their products, services, and solutions.
The top half of the document outlines products and services at a general level. Halfway down, it becomes more specific by offering a recommended solution and a pricing table to indicate costs.
The information in the table and the associated cost would clearly indicate the offer and expected consideration.
While this appears to be a sales proposal at first, note the General Services Agreement in the bottom half of this document.
This, combined with the plans and pricing section and the cost estimates give his proposal all the hallmarks of a contract.
Temporary employment contract template
This contract outlines all the basic details for hiring a temporary employee. Scrolling through, you’ll see clearly defined sections for terms, termination, duties, hours, and more.
This boilerplate contract relies heavily on attached documentation (referred to as Exhibits in the document) to better outline the more pertinent information for the temp worker.
Bundled together, the exhibit documentation and the standardized contract create something that is both generic and open-ended enough to be a template and flexible enough to be easily customized.
Frequently asked questions
Certainly. You don’t need to be a lawyer in order to write your own contract. There are plenty of great resources, templates, and examples that can help you create basic contracts from scratch.
However, keep in mind that legal contracts can be tricky. Even if you write a contract, you should consider having a lawyer review your contract to ensure that it’s legal, enforceable, and doesn’t open your organization to unexpected exposure.
Before you start, take some time to determine the purpose of the contract.
Once you have an understanding of what the contract is intended to do, specify the terms of the agreement and write down all necessary details required. Your mileage will vary based on the purpose of the contract.
Be sure to list all appropriate parties and provide a clear and convenient way for all stakeholders to negotiate and sign your contract.
A valid contract must include the following:
- A valid offer made from one party to another.
- Proof of acceptance by both parties.
- Consideration or compensation in exchange for the goods or supplies listed in the offer.
In addition, all parties must show an intent to enter into a contract and have the mental capacity and legal authority to do so.
You can also customize your contract with additional guidance or regulations, including the state law that should govern the contract, what happens if a dispute arises, and whether the information provided from the resulting agreement should be kept confidential.
No, but it’s still a good idea to have your contract reviewed by legal counsel who specializes in the governing law of your contract to ensure that everything is enforceable and above board.
You might also consider a consultation with a legal team that specializes in areas where you might be subject to industry regulations. In these unique circumstances, your contacts may be required to comply with certain standards that are uncommon in contracts from other industries.
If you’ve already written your contract, congratulations!
Next, you should review it with legal counsel if you intend to do so. After the contract is finalized, make a template so that you can reuse it in the future.
When it’s time to sign, we’d recommend uploading the document to an e-signing platform like PandaDoc and sending it to clients for review.
Once the document is signed, your contract is finished and you’re ready to move forward!
Legally speaking, traditional proposals and contracts are seen as two separate entities. However, like agreements, the word “proposals” can sometimes be used interchangeably with contracts.
If the language of the proposal includes all the elements of a contract (listed above), along with indications that you should sign it and make a payment, you’re probably looking at a contract.
Proceed with caution if all the elements of a contract are present.
Create better contracts with PandaDoc
Even if you have all the knowledge at your disposal, writing a contract from scratch can be a major challenge.
After you’re done, you’ll also need to get it to the right people, manage negotiations, and get everyone to sign on the dotted line. That’s a tall order for any one person.
Fortunately, PandaDoc can help. Our platform is designed to expedite contract negotiation, streamline your quote-to-cash cycle, and make sure that every document you send is safely and securely signed.
Take advantage of all PandaDoc tools (including our template library and community gallery) when creating contracts, quotes, and proposals by signing up for a free 14-day trial today.