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How to draft a strong business contract

Contracts are a vital tool in the business industry, but they can only protect you to the degree of their strength. Their power is a reflection of the thought and effort you put into them. A hurried, vague contract is much more likely to bring you disputes than a clear, thorough agreement.

As you create contracts for your company, keep the following in mind to ensure an accurate, legally binding document.

Know the purpose of the contract

The contract’s purpose determines what should be in it. Business involves contracts with employees, vendors, independent contractors, other businesses and clients. Each one comes with different legal requirements and concerns. Even within each category, the specifics of your business and the other party further dictate what details to include. Therefore, having a clear idea of the contract’s purpose can help prevent leaving out something important.

Make sure you understand the terms

One of the biggest mistakes you can make is signing an agreement without fully understanding it, even if you are the primary creator (such as with employee contracts). Review every clause to double-check that you understand each party’s responsibilities and the penalties of a breach of contract. If anything seems to be ambiguous or missing, change or negotiate the wording until it is straightforward and complete. Doing this can save you from legal trouble later on.

Include dispute resolution

Even with doing everything right, there is no guarantee a dispute will never arise. Therefore, it is wise to include stipulations in the contract on how to handle disagreements. For example, you can agree to try arbitration or mediation before resorting to litigation to save time, money, privacy and your professional relationship with each other.

The bottom line is that no matter the type of contract, ensure it covers all relevant areas, including unforeseen events, and is specific to avoid confusion.


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