Nine Tips to Create Better Contracts
Reading contracts can be tedious and confusing for small business owners -- drafting them can be even more challenging. But well-drafted contracts are vital to your business. A well-drafted contract spells out the rights and obligations of each party and protects you and your business to the most practical extent. A good contract can increase your business, earn you respect, and make you money. A bad contract, on the other hand, can be disastrous. These nine tips will give you a head start.
- Write Clearly. Ambiguous language in a contract can lead to misunderstandings, delays, frustration -- even litigation. Make sure that both parties' responsibilities are clearly outlined.
- Draft Complete Contracts. Many contracts fail or create confusion because they are incomplete. The omission of important terms or expectations can lead parties to assume -- incorrectly -- that the terms are understood or implied. Make sure that all key statements or representations -- from both parties -- are spelled out clearly.
- Look at Sample Contracts and Forms. The best way to begin drafting a contract is to look at several sample forms that are similar to the document that you want to create. Sample forms can alert you to issues you might not have considered, and they can provide strong, standard language for your contract.
- Don't Rely on a Standard Form or Sample Contract. Standard forms may or may not be applicable to your situation -- and they might have been drafted for the benefit of the wrong side. Most forms are simply a starting point and must be customized for your particular transaction.
- The Writer Always Has the Advantage. You almost always want to draft the first draft. Creating the contract language gives you a tremendous advantage in shaping the negotiations, as you can include clauses that you want and structure the deal in a favorable way for your business.
- Make Your Contract Look Like a Standard Form. Sometimes it helps to make your contract look like a preprinted standard form, even though you may have carefully drafted it for your benefit. With the use of word processing or desktop publishing this isn't hard to do, and the other side may be less inclined to negotiate if they think your agreement is "standard."
- Be Aware of Legal Requirements. Certain types of contract provisions may be legally questionable (such as some noncompete clauses in some instances), and other provisions may need to be bold-faced or in all capital letters to be effective. Also, certain kinds of contracts have required terms, language or clauses. A good business lawyer can point these out for you.
- Attach Exhibits. Sometimes it's a good idea to append attachments or exhibits to a contract. In addition to providing specific examples in certain cases, it enables you to use your base contract for many different transactions, while placing all specific documents that are particular to the transaction in an addendum or exhibit. But remember to refer to the addendum or exhibit in the main contract.
- Include Boilerplate. You must include good "boilerplate" or "miscellaneous" clauses at the end of your contract. This standard language may seem trivial but can end up being tremendously important in the event of a dispute. For example, Attorney's Fees Provisions is boilerplate that says the legal fees and costs of the prevailing party will be paid by the nonprevailing party. This can amount to a lot of money in some lawsuits.
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