Understanding Business Contract Basics
Some things you don’t need a formal contract for. Other things you have contracts for, but they are provided by a vendor or supplier and there is not much room to negotiate the terms and conditions.
But when you do have the opportunity to document a key business relationship- a vendor, a customer, a business partnership, for example- it is important to know what you need to include.
Whether you do it yourself or hire a lawyer to help you, when you write a business contract that you intend to be legally enforceable, there are some essential elements that you should consider from your first discussions to the final legal document.
What is a Business Contract?
A business contract is nothing more or less than an agreement to exchange one thing for another- money for a service or product, investment of time or money in exchange for sharing the profits and losses of a new business venture.
The truth is you enter into contracts every day and don’t even think about it. When you hand your money, debit card or phone to the person at the coffee shop and walk down to the end to wait for your drink, you have, in probably less than 20 seconds, made a legal contract that in exchange for your money they will give you coffee.
In your small business, there are countless types of contracts that are similarly straightforward- your routine purchases, subscriptions, etc. And there are some types of contract that are not necessarily straightforward, but that you have very little control over. Examples include your phone and internet services or the “clickwrap” agreements you must accept when buying software or software subscriptions.
There are other places, however, where it is important to pay attention to your business contracts, both to make sure they serve your legal purpose but also that they are accomplishing your business goals in the transaction.
How to Make a Business Contract
Whether it is a customer agreement, vendor contract, or any other types of contract, here are some steps you will need to take before you (or a lawyer you retain) write a business contract that will serve your business goals and be legally binding:
- Make a list of the key terms and share them with the other party. This does not need to be formal or fancy- it can be handwritten on a piece of paper, sent as a list in an email, or even written on a napkin at a restaurant. The important thing is that you agree on what you are agreeing to. Key terms at this stage include what is being provided at what price and how long you expect the relationship to last. Unless you feel you need help negotiating the substance of these key terms, you generally do not need a lawyer involved at this stage.
- Once you agree on key terms, confirm them in some kind of document. You can use a term sheet (a simple bullet point list signed by all parties), or a Memorandum of Understanding. A term sheet can be a simple bullet point list signed by all parties. A Memorandum of Understanding a simply a slightly more detailed description of the agreement, usually with a date by which the final agreement will be signed. “Signed by all parties” in Massachusetts can include email acknowledgment or consent.
- Draft the agreement: this is where it is most advisable to get a lawyer involved, to make sure that the words you use mean what you intend them to mean and would be read by a judge to mean what you intended them to mean, and to reduce or eliminate any ambiguities in the contract that could lead to disputes later on.
- Do not rely on internet templates: Really, do not. They may be perfectly good agreements (and many are written by lawyers), but if they are not written with your specific situation in mind, you may be including terms that you never even considered, let alone agreed to, and they may leave out things that are important to you. They also may include things like alternative dispute resolution provisions that you should not include unless you fully understand them and unless they really reflect what you want.
See also: When Do I Need Small Business Lawyers?
How We Can Help
Getting a business lawyer involved with your contracts does not mean you are doomed to drown in densely-worded, incomprehensible legal documents. We understand that your contracts are not just legal documents but documents that can help set clear expectations- that means they need to be readable by regular people. We can help make sure you have the essentials documented, so that you can do what you went into business to do without worrying about ambiguities in one of these key relationships.
Stay ahead of the curve by finding experienced business lawyers at Lynx Legal Service. We invite you to contact our law office –Lynx Legal Service, or alternatively, send an email firstname.lastname@example.org and we’ll get back to you as soon as possible.