A business contract is effectively a written record of an agreement between two or more parties. A contract could establish an employment relationship and certain restrictions on an individual’s behavior. It could lock in a vendor agreement or lease terms. Contracts help make operating expenses predictable and help solidify the relationships between the parties. Of course, contracts aren’t always effective. Omissions and improper inclusions by either party can reduce how useful a contract may prove to be.
What are the necessities people must include in a contract if they want it to be valid and enforceable later?
Information about each party and the arrangement
At the very least, there will need to be identifying information about both parties, including the names of the individuals or businesses, as well as their legal mailing addresses. The second-most basic inclusion in a contract will be the specific terms of the agreement between the parties. The amount of money that will change hands, the expectations of both parties, the timeline for completion and numerous other details should be spelled out thoroughly within the contract. Failing to go into detail might mean that each party acts on their own assumptions and that conflict will later arise.
Conflict resolution and penalty clauses
Whether people need a vendor agreement or an employment contract, there could be a disagreement between the parties in the future. While binding arbitration clauses have fallen out of popularity in recent years, including terms for dispute resolution is still a smart decision. Requiring negotiations, mediation or other collaborative efforts before litigation is a common inclusion in modern contracts.
To facilitate a better resolution when there is a dispute, it is also common for businesses to outline specific penalties for different breaches. A failure to deliver goods or a delay in payment might trigger a set financial penalty, for example. The inclusion of such terms will make it easier to impose financial consequences for a contract breach and can give either party leverage when negotiating the matter in the future.
Terms for ending the contract
Whether there needs to be a cancellation fee or a certain amount of notice provided by either party, it is typically beneficial to include terms about when and how either party to the contract can end the agreement.
Different types of arrangements may require different inclusions in contracts, and custom documents typically offer better protection than boilerplate documents reused in multiple situations. Including thoughtful details in a contract will help maximize the protection for each party signing the contract and reduce the likelihood of a significant breach later.