How to Write an Effective Business Contract

What Are Some Boilerplate Aspects Needed In A Valid Contract?

There are a number of features needed within a contract in order for it to be considered valid. While our contract FAQ goes more into the exact details, any and all business contracts require at least the following five fundamentals:

  • The names of all parties/entities involved
  • The date of the contract
  • Contract expiration dates
  • Potential damages for any breaches of contract
  • Payment amounts and due dates (where necessary)


When Do I Need A Contract In Place?

The answer to this question varies business to business, but typically you will want a contract in place when:

  • Buying or selling goods or services
  • Renting or selling real estate
  • Hiring an employee, servicer, or contractor
  • Accepting work as a contract or a business
  • Franchising
  • Entering a partnership or joint venture of some sort.


What Constitutes A Valid Contract?

For a contract to be considered valid, various elements of proof must be met. These elements include:

1) Both parties agree to the contract

2) Both parties are competent

3) The agreement is based on genuine assent of the parties involved

4) The agreement is supported by consideration

5) The agreement is made for a lawful objective, and the agreement does not break the law. 

If any of these five features is missing, the contract is not considered valid and is unlikely to hold up in a court of law.


Who Can Legally Participate In A Contract?

It is important that a contract is only entered into with a person or party capable of fulfilling the duties enumerated within the contract (i.e. a CEO instead of a sales representative). A contract will also not be valid unless everyone involved is an adult with the legal capacity to enter into a contract. Other things to consider include:

  • In almost all states and cases, a contract is not binding unless the parties involved are at least 18 years old.
  • If a minor would like to enter a contract, a guardian may be able to do so on their behalf. In the majority of states, an emancipated minor can enter a contract as if they were an adult.
  • All parties involved in the contract must have the mental capacity to fully understand the contract. If a person is unable to read, for instance, the contract must be read and explained to them in order for it to be valid.
  • If a party is intoxicated or otherwise mentally impaired when the contract is signed it is invalid.
  • A contract is also invalid if it is entered into under duress or coercion.


How To Write The Contract:

Basic Information:

The contract will need a date at the top of the page as well as the names or company names of all parties involved in the format “This contract is between ________ and ________.” Contracts with businesses should include the business’s full legal title – including designations (LLP, LLC, Incorporated, etc.). It is also a good idea to include an individual’s title in this section.


Details of the Consideration:

In clear, understandable language, describe what goods or services are being exchanged. Use short, clear sentences broken into short paragraphs. Don’t worry about using legalese; use plain language (as courts decide the case based on how the contract would be interpreted by the average person). Explicitly write what one party is promising to deliver, and when. If services are part of the contract, include: who, where, when, for how long, and for what consideration. If goods are a part of the contract, include the: color, size, make, model, delivery date, and any other identifying details.


Include A Termination Clause:

Specify explicitly how long the contract will last for. For example, if it’s a one-time exchange of services, state that the contract will be terminated upon the completion of the transaction. If it is an ongoing service, you may want to consider stating that either party may end the contract by giving the other party a 30-day notice. Include what the consequences are if someone breaches the contract (typically a voiding of the contract), and add a dispute resolution clause that explains how the issue will be handled if a breach occurs (i.e. through arbitration or mediation, who will pay the fees and court costs, and in what jurisdiction will it take place). 

Need advice?
Revised: June 15, 2016, 7:23 p.m.
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