How to Write a Business Contract in 9 Simple Steps

58% of litigation matters happen because of business contract breaches. This means that you need accurate and detailed business contracts. Making haphazard deals and legal handshakes can be risky because you cannot prove them. So, you must know how to write a business contract to secure your assets and avoid unnecessary legal hassle.

What Is a Business Contract?

A business contract is a legal document between two or more parties with any type of business together. It is a binding contract that states the agreements and conditions about how the business should move forward.

It is a necessary tool for companies to make sure everyone is on the same page. Also, it protects the parties’ interests if any of them go against the agreed terms of service. 

Types of Contracts in Businesses

Although there are several types of business contracts, these five types are more common. They may define your criteria for how to write a business contract:

• Non-Disclosure Agreements (NDAs): You sign them when you must protect the confidentiality of company or business assets.
• Sales Contracts: These deal with the sale and purchase of goods or services.
• Partnership Agreements: They are drafted when you want to do a joint business.
• Employment Contracts: You sign them when you start working at a company.
• Loan Agreements: These happen between consumers and banks/loan agencies.

Can Anyone Write a Business Contract?

Yes, anyone can do it. Although large companies have at least one designated legal personnel who drafts it, it is easy to write a simple contract. One consideration of how to write a business contract is that you must include these elements:

• Clear Offer: Your contract must state the nature of your business in clear, simple words.
• Agreement Intention: Remember to mention the why, how, where, when, and who in your contract. Specifications matter in legal documents.
• Valid Terms: Don’t include unethical or non-achievable goals. The terms and conditions of your contract must be professional and doable.
• Capacity of Involved Parties: Are they of legal age? It seems a no-brainer requirement, but you must cover as many legal aspects as you can. Furthermore, the contract should not look like you are forcing or coercing other parties.

Besides these components, you need a workable template. You can draft an agreement more efficiently if you have a specific outline.

Benefits of a Business Contract and Agreement

A business contract and agreement protect the interests of all involved parties. Besides, it has other benefits, too:

• Legal protection: You won’t be held accountable if anything goes wrong during the partnership. It can be dealt with if it is written in black and white.
• Payment clarification: Everyone knows how and when they will get paid. Since businesses are all about asset management, this clarity can guarantee you peace of mind.
• Improved work quality: Businesses move smoothly because of better communication. Detailed contracts help you create long-lasting systems and criteria. In turn, it can refine how you work.
• Better business relationships: Your work environment may depend on your business contract and agreement. Everyone gets what they need when expectations are aligned better.

How to Write a Business Contract: The Step-by-Step Process

Your contract will be professional if it underlines all the aspects of the agreement. Here is the detailed process of crafting it:

Specify the Involved Parties

You must mention:

• Full names
• Complete addresses
• Designation and position in the companies

This will make accountability stronger. The law can hold the right people responsible if need be.

Mention the Purpose

Specify everything in this section. 

• What is the nature of your business?
• Why do you need this contract?
• What are the benefits of this contract?

It is necessary so that you may not be held accountable for something you didn’t sign up for. It happens more than you might assume.

List the terms and conditions.

How to write a business contract? Be as clear about it as you can. Give details about the involved parties:

• Responsibilities
• Obligations
• Expectations
• Deadlines
• Performance criteria

Professional jargon is inevitable in a business contract and agreement. However, you must try to use simple words otherwise. The more understandable the contract is, the easier future management will be.

Define Payments

Finances are the most important part of a business. In fact, most of the litigation happens around it. One requisite of how to write a business contract is that you define:

• Mode of payment
• Payment period
• Total agreed amount
• Possible penalties in case of late or missed payments

Mentioning the when, where, and how of payments can save you from any inconvenience. Don’t try to downplay the importance of this section, even if you are making a contract with friends. Keep everything in the open.

Include Any Legal Clauses

It is vital in case of disputes, disruptions, or breaches of the contract. Legal clauses may include ways of resolving these unfortunate possibilities. You may agree on any of these methods:

• Mediation: A person (mediator) helps the involved parties reach a decision.
• Arbitration: A person (arbitrator) analyzes the dispute and decides on their behalf. This might require another binding contract.
• Court settlement: It happens when the involved parties cannot resolve the disagreement.

Another point of how to write a business contract is that you specify a jurisdiction. For example, small businesses can specify that their local corporate law office will oversee the dispute handling. Similarly, large companies can mention Chicago as the dispute jurisdiction while Illinois law governs the contract.

Describe Return, Termination, and Renewal Policies

This is another necessary section in your business contract and agreement. 

• Under what conditions can you terminate the contract?
• Why will you return the products/services? What are your quality criteria?
• What will be the conditions of renewal?

You cannot release the involved parties without a clear expectation. It will be unethical. Also, you may be taken to court because of “unspecified terms and conditions.”

Review

Another principle of how to write a business contract is revisions. You must show it to trusted team members once you complete the agreement. Check for:

• Format and typos
• Possible legal loopholes
• Unexplained terms of agreement

It is better to take your time now than face undesirable consequences later.

Get Legal Advice

A second professional opinion doesn’t hurt. A legal counselor can better advise you on how to write a business contract according to state laws and jurisdictions. 

Also, they will make sure that you haven’t included:

• Unnecessary or unenforceable clauses
• Obscure text that may result in disputes
• Repeated texts or sections

Discuss and Proceed

It is better to discuss business contracts with the involved parties before signing. Open communication can:

• Give you a good reputation
• Build a trustworthy environment
• Allow everyone a chance to express their expectations. 

You might need to make a few changes after this. Nonetheless, it will benefit your business in the long run. Once everything is settled, you can sign the contract and go on with your dealings.

Conclusion

You must know how to write a business contract to protect your assets while dealing with other parties. Although there are several types of contracts, their core elements are clarity and valid terms. Finally, the necessary steps of writing a contract include mentioning terms and conditions, defining legal clauses, and outlining payment criteria.