Entering Into a Contractual Business Relationship: Covering Your Bases

Entering Into a Contractual Business Relationship: Covering Your Bases

signing an agreement, business attorneyWhen entering into a contractual business relationship, careful consideration, clear communication, and planning ahead can prevent legal disputes down the road. Successful contracts avoid complicated legalese, provide specific terms, and describe the method and manner of payment expected. The circumstances under which the contract can be terminated should also be addressed.

Elements of a Legally-Binding Contract

Contracts can be verbal or written. It is advisable for business contracts to be written, however, because they are easier to enforce. To be legally-binding, contracts must include four elements.

  • Offer
  • Acceptance
  • Intention to create a contractual relationship
  • Form of payment

Contracts should outline the expectations of both parties and address how to handle situations before they arise. However, there should be a balance between flexibility that allows parties to respond to unexpected situations and specificity that prevents misinterpretation.

Plain Language

The terms of use for an iPhone might be 50 pages long and filled with legalese, however, the best contracts are written in plain language that both parties understand. Plain language doesn’t require sacrificing specificity for brevity – instead, it means using language that is easily understood but also clear in the assignment of obligations.

Specific Terms

Parties that want particular outcomes should be specific. For example, if a party wants delivery on the 15th every month, the contract should specify delivery on the 15th (not “on or about the 15th” or “every two weeks”).

Payment

Contracts should also dictate how payments are made and on what schedule. For example, will payments be made in installments or after services are completed? Is payment due before or after goods are shipped? Will interest or late charges be applied when payments are past due?

Terminating the Contract

Every contract should include provisions which detail the termination of the agreement. Although most contracts end on specific dates or when the expectations of the agreement are fulfilled, they may also end when both parties agree to terminate the contract, when unforeseen circumstances occur, out of convenience, or due to a breach.

Preparing for Disputes

Many contracts also include clauses that address how disputes will be handled. Some clauses award attorneys’ fees to the winning party if a lawsuit arises. Others include provisions that require mediation or arbitration.

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