Signed and Sealed: A Beginner Business Owner’s Guide to Contracts
Writing, negotiating and signing contracts is a crucial facet of business management and one that, as an owner, you’ll need to wrap your head around if you want the company to succeed. Here are a few key considerations to bear in mind.
The Importance of Contracts
Contracts are the documentation that keeps the world of business in line and functioning fairly. Whether you’re signing an agreement, partnership or sponsorship, a contract gives both parties assurance that their terms will be fulfilled as outlined in writing. There is, however, no limit to the shape and nature of a contract, meaning that if you want to protect yourself and your company, you’ll need to learn how to read, write, recognize and negotiate these crucial documents before the signing phase.
What Constitutes a Contract
Business contracts can come in any number of different formats. The requirements in order for a contract to be valid are quite minimal, these include:
An offer and acceptance of said offer (or ‘consideration’)
Two consenting parties that are ‘willing and able’ (e.g. not minors) and in agreement over the terms
A lawful object at the center of the contract. For it to be valid, the object must be enforceable by law
Types of Contracts
The forms that a contract can take, you may be surprised to learn, are varied and flexible. You can enter into a contract verbally, for example. So long as the terms of an oral agreement can be proven in a court of law, the oral contract is enforceable. There are also a number of common types of business contracts, such as:
Nondisclosure Agreements - these occur between two parties, delineating any confidential material and placing signees in strict confidence so they may not disclose this material without consequence
Indemnity Agreements - these are formed to absolve a business or company of any responsibility for loss or damage
Partnership Agreements - these are formed to set out owed responsibilities between two or more business partners with regards to individual obligations, capital contribution, profit/loss distribution, ownership interest and more
Given the flexible nature of contracts, sometimes it’s possible to craft these without the help of an attorney. This is perfectly legal but not always advised and you may find it’s worth carrying out some research beforehand to determine whether you’ll need legal advice on the type of contract you intend to fulfill.
When crafting a contract, especially in important circumstances, thoroughness is important. You’ll need to spell out the rights and obligations of each party in detail, determining when/how the contract can be terminated for both parties and agreeing on the manner in which disputes can be solved. You’ll also need to ensure the contract adheres to the law (both state and federal), protects confidentiality and includes payment details clearly.
The shape of contracts is indefinite and so are the terms within them, meaning you can often negotiate your way to a more advantageous position. Your best asset in this regard is knowledge - ensure that you enter into negotiations with plenty of research, data, insights into the counterparty’s motives, and a flawless understanding of your own company’s position and capabilities. Consult your finances before entering into talks and make use of integrated bookkeeping software to fully understand your business's financial health (the right program should make this easy by centering all your finances on a single platform, giving you real-time insights on cash flow).
Tools for Contracts
The actual process of forming and signing contracts has been made more efficient than ever by modern technology. It’s now possible to present, edit and modify contracts using free online software. You can even go an extra step further by using an online logo creator to maintain consistency, quickly creating and stamping your brand on documents. You’ll have a choice of style, icon, text and a number of different images to help you design this.
If you haven't experienced one already, you should also familiarize yourself with electronic signature programs - these remove much of the hassle of managing and signing documents, removing the need for mail, flights and ink, whilst providing as much legal validity.
Business contracts can seem intimidating to a new business owner, but navigating these is often a question of research and enlisting the right legal support.
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