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7 Fundamentals of a Business Contract

No one willfully enters a business contract with knowledge that the other party will breach the contract. Most people enter contracts in good faith expecting the parties involved to honor their legal duties. Drafting up contracts can be a complex process. Each party involved must  adequately feel that their interests are being honored. Contracts can range from one page with simple wording to 30 pages with confusing legal jargon. However long your business contract ends up to be, certain fundamentals should be included.

1. Get it in ink

Business contracts should always be in writing. Written records limit the potential for miscommunication or misunderstanding. Contracts drafted orally leave room for people memories to fail or misinterpretation to occur.

2. Establish an agreement

For a contract to be legally binding there must be an agreement. Contract agreement includes offers, counter-offers, obligations, payment terms, etc. Once one party offers certain conditions and terms the other party has the opportunity to accept these terms and conditions. If the receiving party changes a term or condition, this is called a counter-offer. The process of negotiating between both parties usually leads to "meeting of the minds" After both parties agree on the same terms and conditions then a contract can be created.

3. Be detailed

When drafting up a contract be sure to include all the necessary details. Loopholes in contracts are created by ambiguity and characteristics that can be interpreted in a number of ways. Not addressing every detail leaves you open to exposure of breaches of contracts. Details about payments, clear obligations for each party, and specific dates should be apart of your contract.

4. Consider a confidentiality clause

When two parties are involved in business together secrets will be shared. More specifically, techniques, methods, and sources will be revealed to both parties. To secure the safety of your sensitive information consider including a confidentiality clause in your contract. This can prevent the other party from sharing information with a competitor or the public.

5. Termination clauses

It is very important to include simple termination clauses within your contract. Missed deadlines, insufficient payments, and disclosure of confidential information can all be breaches of a contract. In the event that the contract is breached you want to be sure there is a way to easily terminate the contract. If you don't include a clear way to terminate the contract it you may be forced to remain in the contract longer than you originally anticipated.

6. Term dates

A contract should always clearly list the term dates. The effective date is the date when the contract comes into effect and becomes  legally binding. The expiration date is the date when the contract is no longer legally binding. Although it seems like a simple thing to remember people often lose track of the term dates, consequently opening them up to legal trouble.

7. Identifying names/authorized signatures

Information that identifies parties involved should be included. This includes but is not limited to legal names, physical address, and email addresses. Authorized signatures indicates agreement to the listed terms and conditions.