Contracts are an integral part of doing business. They serve as a memorial of any agreement and ensure all parties stick to the deal; so it's essential to know the basics of when - and how - to write a contract.
As a small business owner, one of the most frequent things you'll be doing is creating business contracts. Sure, there are a lot of templates online but every situation and business has different needs so you can't always rely on such templates.
You'll also definitely need a few written by yourself, as contracts are often used for employing staff, hiring contractors, buying and selling services and goods, partnerships and joint ventures, franchising, confidentiality, and non-competition agreements.
Online bazaar Ananasa co-founders Rania and Zaina Kanaan recommend having a legal professional look over all your contracts, adding that "we have a lawyer that looks over all our documents before we take them live."
You may choose, however, to keep legal advice to a minimum. Written contracts remain legally binding without the presence of a lawyer if all parties sign willingly. With start-up public relations firm Purple PR, its co-founder Serene Touma said: "Our client agreements are signed and stamped by both parties, as are our employment contracts. In addition, all invoices and receipts are placed on official letterhead and signed by one of the two partners to ensure all transactions are documented."
Make sure you have a clear and comprehensively written contract that includes the following:
- Date
- Timeframe for completion of the agreement
- Names of those involved, including the company they represent (if any)
- Obligations and expectations of each party
- Terms of the agreement (whether it is a sale, lease, a partnership or any other business venture)
- Terms of financial exchange or payment, if applicable
- Cover for all potential liabilities (i.e. terms of late payments, renewal process, damages of contract breach)
- Conditions of contract termination
- Signatures
These can be daunting to write. Just keep in mind, though, that a business contract is necessary to protect your business. It also creates trust between you and anyone you'll be dealing with, whether they're your staff, suppliers, or clients.
Of course, you may still choose to base your business on informal handshakes and verbal understandings, you are just running a higher risk of getting into disputes and legal claims - all of which will take time and money away from the business.
Conversely, as you become more adept at writing contracts, you will become more confident in reading them. After all, owning a business entails both writing contracts and signing into a few yourself.
Contracts are binding, whether they are in print or on soft copy. However, make sure all parties involved have copies of the contract. Generally, people prefer printed copies as electronic signatures can still be legally challenged.
Finally, here are some tips to keep in mind when writing contracts:
1 - Avoid complicated jargon. It may seem counterintuitive to make a contract simple, but this is just what you need to make sure all parties are on the same page. Be specific, focused and comprehensive. If you are writing a bill of sale, for example, state not just the date of delivery but the precise time you are expecting to deliver the purchased item.
2 - Be explicit. Make sure you write out all the conditions of the agreement. Don't assume that everyone understands things implicitly. Write the fine print with the intention of clarifying all questions that may arise.
3 - Use laws and regulations. When you are writing a contract, make sure you are not violating any federal or state laws that would make your contract null and void. Keep updated with any changes to government regulations.
Some terms to keep in mind:
Bill of sale - A document that transfers the title of an asset from seller to purchaser. It contains date of acquisition, purchase amount, terms of payment. It is an explicit agreement that the ownership has now been transferred from the seller to purchaser.
Management contract - An agreement between investors or owners of a project and a company that has been hired to 'manage' or oversee said project. This document outlines the conditions and time frame of the agreement, as well as management fees. It may also be used for licensing and franchising.
Employment contract - A contract between employer and employee. It contains information on the employee's responsibilities, the benefits and salary they get in return, as well as the terms and conditions of their employment. Confidentiality contracts and non-competition agreements may also be drawn up for employees.
© Zawya BusinessPulse 2013
