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What Are the Essential Elements to Include in Your Business Contract?

By Contributing Writer
Eleanor Hecks
December 27, 2023



A business contract should be a binding agreement between two parties. Small business owners don’t want to include something that might tie them into a detrimental situation. By the same token, you need protections in place to keep your business thriving.

An excellent contract should be easy to understand without a ton of legal jargon. However, you also want to ensure the words are legally binding in a court of law. Contracts must have some essential elements to protect all parties.

1. Choose the Language

Many attorneys often use legalese, which can be difficult to understand. It's much better to use simple words in the language of your native tongue. It's better for people to understand what they're signing and to lay everything out in black and white so there are no misunderstandings.

Sticking to plain English also eliminates ambiguity someone can use against you later to breach their contract.

2. Identify Parties

A business contract should clearly identify the parties signing the agreement. First, explain the relationship, such as “Customer” and “Business Owner.” If you’ve ever seen a lease, you probably noted identifiers such as “Landlord” and “Tenant.”

On the first mention of the parties, include the person’s full legal name and then identify them. The rest of the contract can use the more general words as a time saver.

A first line might read: “John Doe (Service Provider) and Jane Smith (Customer) agree to…”

Make it clear who serves what role in the agreement so there isn’t any confusion later.

3. Provide Electronic Signature Box

Government bodies agree an electronic signature can be legally binding in most cases. Benefits to using an e-signature include making agreements with those in another state or country, more environmentally friendly and cheaper to produce.

To make sure any electronic signatures you collect are in compliance with business contract standards, embed them into your website or app. Utilize secure collection methods to protect the information within and keep a copy of the contract on file for easy future reference.

4. Include Scope and Range

A business contract should include the scope of the agreement, including where any disputes are solved in court. If one party lives in New York City and the other in Los Angeles, where do any court actions occur?

Adding location details to your contract may help you in the future. You won’t have to spend thousands traveling to another state for court. Instead, you’ll attend in your area.

Make a time frame for the contract. An open-ended agreement that never ends or adjusts isn’t good for the business owner or the customer. At a minimum, review things every few years to ensure pricing and agreements still make sense with any company growth.

5. Protections

If you’ll be sharing sensitive data, you may want to put some protections in place, such as nondisclosures or details about what the person can share.

One example might be working with a freelancer who agrees to not share what you do. Without a nondisclosure agreement, you’re at risk of them sharing insider information you don’t want competitors to know about.

Protections should include who has access to any proprietary information, how the person will use the details and who it can be shared with.

6. Lay Out the Business Contract Terms

Lay out the terms of your contract. What service or product will you, the business owner, provide? What is the user’s role? Do they have any responsibilities to fulfill their contract obligations?

 

Be detailed. You want to show the process step-by-step. Don't leave any room for doubt about what you will provide.

If payments come monthly, give a date and describe any late fees should the person not pay in a timely manner. If you deliver a box of goodies each month, what date are they mailed and by what method? What happens if you need a new logistics partner? What kind of notification is needed?

Get down to specifics such as how payments are made, be it electronically or by check. When, how, where and to whom should the checks go?

7. Add a Cancellation Policy

Unfortunately, there are times when a business relationship goes downhill. Write in a way to cancel the contract. Think about the last time you were unhappy with your satellite television provider and wanted to cancel.

You likely learned you agreed to a set length of time, and early cancellation would incur fees. Since the company spends time sending out a provider to install a dish and set everything up, they must ensure they can recoup costs and make a profit before you cancel your service.

What is your tipping point for your contract? If someone wants to cancel, when and how can they do so? Are there any fees?

Include how you can end the agreement. You might sign a contract with a client and realize they are a complete nightmare or you can’t deliver to them satisfactorily. Have a way to end the contract should the need arise — some people call a significant event a force majeure. If a natural disaster destroys your inventory and you can’t deliver, end the contract. Allow for the unexpected.

Pay Attention to the Little Details in Your Business Contract

When companies run into issues with their business contracts, the problem is usually in the details. Read through your agreement carefully and fix any loopholes or wording that needs to be clearer. You don’t necessarily need a lawyer to come to an agreement, but hiring one to glance over what you’ve come up with can save you a lot of heartache later.

Eleanor Hecks is the managing editor at Designerly. She’s also a mobile app designer with a focus on UI. Connect with her about digital marketing, UX and/or tea on LinkedIn.



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