Business Contract Basics
What You Should Consider in Key Business Contracts
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 terms. 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 binding, there are some key 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 make 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 contract that in exchange for your money they will give you coffee.
In your 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 protect yourself legally but also to make sure they are accomplishing your business goals in the transaction. Having a business lawyer review your agreements can help make sure you are covered.
Contracts With Customers or Clients
Surprisingly, though this is one of the most critical set of relationships in your business, many small business owners give little thought to how they are documenting their terms of engagement with customers. Let's say your business involves retail transactions, like the coffee shop example, in which you are exchanging a product for the payment of money. You are obviously not going to slow down that transaction by signing a contract every time you sell something. But if what you sell or provide is any more complex than that, you should consider documenting the terms in a contract or agreement. It doesn't have to be complicated, or dozens of pages long, but you want to be sure you have covered the basics:
Contracts With Vendors
If you have a vendor you can negotiate with (examples include people providing website, marketing, design, recruiting, or other customized services), you should cover the same bases as with customer contracts, but also:
Business Partnership Contracts
Many small businesses are involved in numerous kinds of partnerships, ranging from a formal partnership between co-owners of a business to informal alliances in which two or more separate businesses team up to take advantage of a business opportunity and share profits and losses, whether they formally share ownership interests or not.
What a lot of business owners fail to appreciate at the beginning is that both success and failure can test your relationships and put a strain on the business partnership you entered with high hopes and optimism. If there is suddenly a lot of money involved, or if the business venture is struggling, you may find yourselves disagreeing about things you always thought you would work out later. Many expensive and disruptive disputes have arisen due to lack of clarity about the scope of these relationships when the agreement is first reached.
In addition to clarifying ownership interests and division of profits and losses, here are some things that should be clear and documented in all partnership agreements or operating agreements:
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:
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How slnlaw 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.