Operating a small business typically involves the need to reach agreements with other parties. This may include everyone from partners to vendors. To protect yourself and ensure that the other party follows through with their part of the agreement, it’s critical that you document what’s been agreed to in a legal contract. Consequently, even though you may look to a Denver business attorney to draft the document, it is important that you have a general understanding of contract law.
Key Considerations for Drafting a Contract
As you work with the other party and your lawyer to produce a contract, keep these contract law best practices in mind:
- Everything must be in writing. No matter how comfortable you are with the other party, it is essential that you put all aspects of your agreement into a written contract. It may seem like some of the details are inconsequential and can be covered by a handshake, but sometimes it’s the smallest things that come back to haunt you later. It’s especially tempting to take certain things “on faith” if they come up after a written agreement has been drafted. However, you are much safer revising the contract.
- Be sure you are dealing with the right person. It’s not uncommon to put a great deal of time and effort into creating a contract only to find out that the person you’ve named in the document doesn’t actually have the authority to execute the agreement. Then, unfortunately, you are likely faced with a whole new set of review and revision iterations that not only eat up more of your time, but that may also delay progress on the initiatives covered by the agreement.
- Keep the contract simple. A contract should include all the verbiage necessary to clearly explain all aspects of the agreement, but not a word more. If that sounds dramatic, remember that information that isn’t relevant to the agreement or that repeats things already stated only bulks up the document, extending the time it takes to review and approve it. What’s more, the extra verbiage can muddy the waters if the contract must be interpreted or revised at a later date.
- Identify all parties correctly. How a person or company is generally known and how an entity is legally defined may be two very different things. At a minimum, using the wrong name in a contract can make it more difficult to enforce the agreement. And in the worst case scenario, it can void the agreement. This is not something you want to discover after a conflict arises.
- Pay special attention to performance and payment. Everything in a legal contract should, of course, be accurate. But the areas covering what is required of each party in terms of actions to be taken or payments to be made are especially important. Be sure to double- and triple-check this information before you sign.
- Include terms that cover confidentiality. In many instances, working with another person or company exposes your sensitive business information to them and vice versa. Your agreement should have verbiage requiring strict confidentiality regarding anything learned about the other party’s operations during execution of the contract.
- Specify how disputes will be resolved. Taking a breach of contract case to court can be very costly, both in terms of time and money. You may want to consider agreeing to handle disputes through mediation or arbitration and writing that into the contract.
- Be clear on the issues pertaining to termination. Under what conditions do you have the legal right to terminate the contract? How about the other party’s rights? The only thing worse than having a business relationship sour is then finding it difficult to officially sever the relationship.
- Choose which state’s laws apply. If you and the other party are located in different states, be sure to specify which state’s laws will be used to interpret the contract. You may also want to indicate where arbitration or mediation will take place if that is part of the agreement.
Welcome Clarity When Drafting a Contract
Whether you’re new to contract law or have executed hundreds of contracts, preparing to sign on the dotted line can be a source of concern and anxiety. But, using the checklist above and getting input from a Colorado small business attorney can help you enter into the agreement with confidence.
If you need guidance on contract law or assistance with drafting a contract, contact me, Elizabeth Lewis, at the Law Office of E.C. Lewis, P.C., home of your Denver Business Attorney. Phone: 720-258-6647. Email: firstname.lastname@example.org
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Law Office of E.C. Lewis, P.C.
Your Denver Business Attorney
501 S. Cherry St., Suite 1100
Denver, CO 80246
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