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How to protect your business with written agreements

How to protect your business with written agreements


Many Illinois business owners may rely on oral or implied arrangements when making deals with others. These business owners may think written business contracts are unnecessary or show a lack of trust.

However, these contracts play an essential role in protecting the interests of a business.

Written contracts clarify any confusion between both parties. They also act as binding proof of the agreement in the event that one party violates it. Business owners should always draw up written agreements before entering into any arrangement that could significantly affect the business.

Creating the contract 

A basic contract should identify both parties, provide the date and specify the terms of the arrangement, including the service or product offered and the price agreed upon. For important agreements, most business owners will want an express contract, which can specify important details such as deadlines, acceptable methods of payment and quality standards. Both parties should thoroughly read the contract and correct any issues before signing it.

Business owners should use contracts when reaching agreements with clients, contractors and employees. Contracts with clients ensure the business has recourse if services or payments are not provided as expected. Contracts with employees establish expectations and termination procedures, protecting the business against potential lawsuits. Contracts with independent contractors define the working relationship between both parties. Business owners who work with independent contractors should be careful to define the duties of each party and establish that the contractor is not an employee.

In some cases, creating a written contract is necessary to ensure compliance under the Statute of Frauds. Two arrangements that must be documented in written contract are the sale of goods worth more than $500 and any agreement that will be carried out more than a year in the future. These contracts may not be enforceable if they are not established in writing.

Breach of contract

When one party breaches a contract, the other party may seek damages, a refund or a release from contractual obligations. The party’s options depend on whether the breach was material, meaning the product or service received was different than expected, or minor, meaning the contract was breached but the desired product or service was received. With oral or implied contracts, it may be difficult for one party to prove that either kind of breach occurred.

Of course, business owners who use contracts may be in danger of breaching them if any issues arise during business operations. This is one reason business owners should consider working with an attorney before drawing up any important contracts. A business attorney can ensure the contract covers most contingencies while protecting the interests of the business.

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