No matter the industry, contracts are essential in business. If you plan to start your own business, you will have contracts with clients, employees, and third party entities in order to protect your company and agree on terms and services. An incomplete or erroneous contract can translate into thousands lost by a provider. Getting the contract just right is necessary to protecting both parties involved in the business transaction, and every new entrepreneur should be weary of a few things when it comes to contracts. Here are five things that every new startup owner should know when it comes to contracts.
Identifying the Parties
While anyone can potentially enter into a contract, certain groups like felons, minors and mentally incompetent individuals cannot. Parties should be identified clearly as either the buyer or the seller. The party should be identified correctly by their legal name or the legal name of the entity they represent. For example, the business may be classified as an LLC or an Inc. The classification of the business is also any important aspect of the contract when naming parties involved in the contract.
Outline the Details
The rights of each party as well as their obligations should be considered as a part of any agreement. Every detail of the deal should be included in the contract, and nothing should be left to chance. Anything left out of the contract in error should be addressed by an amendment. Handwritten amendments can be corrected and added to a contract so that nothing is left out. It is a good idea to have an attorney look over a contract to ensure nothing has been left out, and that every detail is covered so that you haven’t left any area of your business vulnerable.
The Contract Should Be Kept Simple
A simple structure will prevent any gray areas in enforcing the contracts. A simple, well-defined structure prevents the contract from causing challenges to either party involved. At its core, the product or service is being offered by one party, and is being accepted by another party. While details can be helpful, you also want to make sure that the structure of the contract isn’t too convoluted. This simplicity will make the enforcement of the contract terms easier should problems arise in the future.
Be Clear on the Performance Requirements
One party is responsible for performing an action on a certain schedule. If the contract is open-ended in nature, then there should be a maximum amount of hours included in the contract. Considerations for when the payment is made must also be factored into the contract. Late penalties and interest can be incorporated into any type of contract. There may be applicable taxes on sales made as a part of the contract. Just be sure to consider deadlines and schedules when both creating and signing contracts so that you don’t jeopardize the success of your business.
Termination Terms Should Always Be Considered
The circumstances that can lead up to a terminated contract should be outlined in a contract. The contract should clearly outline what breaches or violations make it possible to terminate a contract. Protecting both parties from being on the hook for anything unnecessary is essential in preventing the provider from not getting compensated for services rendered in the case of a terminated contract.
Related Article: Contract Agreements Every Small Business Should Have in Place
Contracts are created everyday by well-meaning parties that end up being contested in court. By focusing on creating a simple and effective contract, entrepreneurs can avoid many of these common issues experienced as a provider or vendor. Likewise, by carefully examining and studying contracts, and seeking professional legal help, an entrepreneur can also avoid entering into a flawed contract that could hurt their business in the future.
Author: This article was written by Dixie Somers, a freelance writer who loves to write for business, finance and women’s interests. She lives in Arizona with her husband and three beautiful daughters. Dixie got advice for this article from the business law attorneys in Sacramento at Carter West.