Top 10 Tips for Drafting Business Contracts
Contracts form the basis of any business by formally establishing the rights and obligations of parties to a transaction or agreement. Ensuring these agreements are properly expressed not only prevents costly legal disputes, but confirms all parties are on the same page. Below are 10 top tips for drafting solid business contracts and agreements:
- Seek legal advice
Although it may be costly at first, engaging a commercial lawyer to properly draft and review contracts can save parties money long term from protecting businesses against legal action. A lawyer can draft a tailored contract for the business needs to ensure the contract is enforceable and parties are on the same page.
- Keep it simple
The language of contracts does not need to be complicated. Clear and straight forward contracts minimise the risk of legal action by preventing misunderstandings from arising out of contractual obligations. Parties should consider using simple, plain English and clarifying anything they do not understand in the contract.
- Get it in writing
Although it is possible for oral contracts to be enforceable, it is difficult to prove the existence of specific terms of the agreement. Written contracts are more reliable and will assist in avoiding disputes with parties. It is advisable that all businesses arrangements be in writing to avoid any confusion both with the parties and in court.
- Provide Details
Witten contracts should include set out all relevant information about the nature of the agreement in the contract to avoid confusion. The contract should include descriptions of each of the rights and obligations expected by each of the parties and describe the result they intend to receive. This manages the expectations of both of the parties and ensures the intended obligations are enforceable at law.
- Check the details of the parties
It is important parties are checking they have the correct details of one another. Where parties use incorrect legal names or details it can become unclear who is responsible for performing obligations under the contract or make the entire contract unenforceable. All written contracts should include correct names and business addresses, Australian Business Numbers (ABN), Australian Company Number (ACN) and signatures.
- Specify payment obligations
Parties should ensure both amounts, methods of payments and payment timing are all clearly set out in the contract. By ensuring these details such as whether it will be a fixed fee or hourly rate will minimise confusion between parties and thereby risk of legal action.
- Include dispute resolution procedures
Business dealings often run into disputes. Agreeing on a procedure to resolve disputes that may arise as part of contractual obligations ensures issues are resolved quickly and cheaply. Parties should consider including a ‘dispute resolution clause’ which allows steps such as giving written notice, and discussions to be initiated before legal action can commence.
- Keep it confidential
It is often the case that business contracts will contain sensitive information about each of the parties. By including a clause in the contract which stipulates who has control over confidential information and what this information includes, parties will understand what needs to be protected.
- Agree on termination procedures
There may be a point where parties may wish to terminate the contact early. Parties may choose to include a clause which states when a party can ‘terminate’ the contract.
- Obtain a copy
Parties should ensure they obtain and keep a copy of the signed contract both for their records and to refer parties back to when they are not upholding the stated obligations.