Ten Points to Consider When Drafting Business Contracts and Agreements

To create an enforceable, plain-English business agreement or contract, follow these recommendations.

1. Get it down on paper.
Although oral agreements are lawful and binding in many circumstances, they are generally difficult to enforce in court (and aren't enforceable at all in some cases). Even though the law does not demand it, most commercial agreements should be in writing. Because you have a document that clearly spells out each party's rights and obligations in case of uncertainty or disagreement, a written agreement is less dangerous than an oral agreement.

2. Keep things straightforward.
Contrary to popular belief, a contract does not require a lot of "heretofores" and "party of the first part" legalese to be enforceable. Instead, use short, straightforward phrases with basic, numbered paragraph titles to let the reader know what's coming next.

3. Deal with the appropriate individual.
Don't waste time negotiating a business deal with a junior employee who has to get the boss's approval. If you suspect something like this is going on, respectfully but firmly request to speak with the person in authority. Make sure the individual you're negotiating with has the authority to bind the company and a vested interest in the company fulfilling its commitments under the contract. Inquire if you're not sure who it is. It could be one of the owners in a small business, or a chief executive officer or chief operating officer in a larger corporation.

4. Correctly identify each party.
You'd be shocked how common it is for businesspeople to get this incorrect, and how critical it is. You must give the correct legal names of the contract's parties so that it is apparent who is accountable for carrying out the agreement's duties (and who you have legal rights against if things go wrong). If a company is organized as an LLC or a corporation, for example, refer to it by its correct legal name, which includes the Inc. or LLC suffix, rather than the names of the people who are signing the company's agreement.

5. Describe everything in detail.
The agreement's body should explain out each party's rights and obligations in full. Don't leave anything out; if you talk about something and shake hands on it, but it's not in the contract, it'll be difficult to enforce. Judges can only interpret a contract from its "four corners" in contract law (with a few exceptions), not from what the parties say to each other. You can always make a quick written change if you forget to include something. You can even handwrite the change into the contract if you haven't signed it yet. The alteration becomes part of the contract if both parties initial it.

6. Make a list of payment obligations.
Specify who pays whom, when payments must be made, and the terms under which payments must be made. As you can expect, money is a sensitive topic, thus this section should be quite thorough. Declare if you'll pay in installments or only when the job is done to your satisfaction, and include dates, times, and criteria. Consider providing the payment method as well. While a company check or business charge card may suffice for some, others may prefer a cashier's check or even cash.

7. Agree on when the contract will be terminated.
Setting forth the circumstances under which the parties can terminate the contract makes sense. For example, if one party misses too many critical deadlines, the other party should be able to dissolve the contract without being held legally responsible for the breach (violation).

8. Agree on a method for resolving disagreements.
Write down what you and the other party will do if something goes wrong in your contract. Instead of going to court, which takes a lot of time and money, you can choose to resolve your disagreement through arbitration or mediation.

9. Decide on the state law that will regulate the deal.
If you and the opposing party are from different states, you should only use one of your states' laws to the contract to avoid later legal disputes. You may also wish to state where you will mediate, arbitrate, or undertake legal action if the contract requires it. If a disagreement arises, this will make your life easier.

10. Keep it under wraps.
When one company engages another to perform a service, the other company frequently has access to sensitive business information. Your contract should include reciprocal assurances that each party will keep any business information learned while fulfilling the contract absolutely secret.

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