You need to be careful, thoughtful, detail oriented and diligent, so you arrive at the right terms for the contract. You’re going into business, and as such, you’re relying on suppliers and partners to operate in your best interests. That’s why a comprehensive contract is so vital.
An entrepreneur or sales-oriented business leader can get so excited about the concept, product or service that he or she loses track of the necessary details for operating a sound business. Therefore, you need to include all the important details and relevant language in the contract. Otherwise the contract is not enforceable, and the business is at risk.
As a business owner, you need to do your due diligence, so you protect your business, employees, and assets. You don’t want a court to sort out something that could have been easily stated in a contract.
Specific contract language
The contract should establish all the expectations, goals, deadlines and terms essential to the business for your partners and stakeholders. Ultimately, the success or failure of your business can hinge on whether the contract is complete, comprehensive and detailed. As a business owner, you cannot rely on verbal agreements because people have inconsistent memories and different interpretations.
Some business owners loathe contracts, and therefore they keep them as terse and concise as possible. But the contract needs to serve its intended purpose, and therefore, it needs to have clauses and relevant language pertinent to your business. If a contract fits on one page, typically it does not serve the intended purpose and you should have it rewritten.
A comprehensive contract not only spells out the requirements and expectations for partners and suppliers, it formalizes your responsibilities as a business owner. You need to precisely specify duties, outcomes and contingencies for all parties involved, so there is no ambiguity or confusion.
These are common elements of many business contracts. While this list highlights some of the important aspects of a contract, it is not exhaustive. Remember, the contract needs to fulfill your specific needs and the needs of your business.
Six common clauses found in commercial contracts
- Confidentiality: You need to protect intellectual property rights, patents and other proprietary materials. You may share information with another key business partner, so you need to protect this information because it spells out the responsibilities for both sides.
- Force Majeure: This protects both parties if unforeseen circumstances culminate beyond anyone’s control. Let’s say a tornado wipes out a truck carrying goods to market. This clause ensures extreme circumstances do not constitute a breach of contract.
- Termination Triggers: Businesses do fail. Even though you’re working to be a success, you need to spell out when certain conditions trigger a termination because the business is failing. This clause clearly specifies the conditions needed for this clause to go into effect.
- Jurisdiction: With international and cross border business, it’s often difficult to determine which laws govern a business and when they are in effect. You and your business partners need to perfectly clear which laws apply to your business and under which circumstances.
- Dispute Resolution: You cannot predict all contingencies, so business leaders need this clause. Unexpected events happen, and problems do arise, so this gives the business and its partners a clear framework for resolving these problems.
- Indemnity: An important clause that essentially says you hold the other party harmless. You won’t sue your business partner, and your business partner won’t sue you for losses, liabilities, damages, costs and other fees and claims associated with a business problem. In many cases, both parties include a dispute resolution clause in the contract.
Operating a business comes with its own set of risks. You want to ensure that you have the best opportunity to meet your business goals. That’s why it’s vitally important to have a complete, comprehensive and detailed contract for your business and its partners.