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Understanding Contracts

Understanding contracts is crucial knowledge for the small business owner. Whether you are new to business, or a seasoned entrepreneur, you can benefit from reviewing the basic structure of a legal contract. In this article we will review some elementary steps to creating an effective contract. As an owner of several business, I have used these very principals to my benefit.

1. CONTRACTS SHOULD BE IN WRITING

It almost goes without saying that you should get everything in writing. Verbal contracts are not reliable and may not be enforceable under certain circumstances. It is best to use written contracts that specifically spell out the terms of the agreement. In fact, there are certain agreements that unless written are unenforceable as a matter of law. 

2. SPEAK ENGLISH

Make sure to use clear, understandable language in a written contract. Even though you are creating a legal document you don't have to write like a business law attorney. Use everyday terms to describe products, services or locations. Try not to use too much industry jargon unless it is clear that both sides understand the term. Please understand that if a contract dispute arises, a Judge and possibly a Jury will be left with the task of interpreting the meaning of your document. It is much easier for the jury and Judge, if the document is understandable to the average person. 

3. BE SPECIFIC

Use very detailed language to avoid challenges to the document. Make sure to use proper names for parties to the contract, and note specific dates when necessary. Do not allow any wiggle room in your document. You may need help from a business attorney to make sure your contract contains enough specificity.

4. BE UP FRONT ABOUT PAYMENT INFO

One of the most important sections of a contract is the payment section. This is what allows one party to receive compensation for their services. Yet, it is important to make sure that payment amounts, dates and methods are clearly defined to each party's satisfaction. You're in business to get paid so make it easy to get the money. If you are not paid and you need to sue, you better have a provision in your contract that will allow you to collect your attorneys fees and costs as well as interest provisions, otherwise, some Judges will NOT award them to you, even though you won your case.

5. DON'T FORGET STATE LAW ISSUES

Every state has its own laws concerning the formation and performance of contracts. It is important you understand how your state deals with each issue. For a thorough overview of the applicable state law issues you may want to contact an experienced lawyer who practices business law such as Gavin Collier. An experienced attorney can help you create a contract template that can be used for all your business deals.

6. A WORD ABOUT CONTRACT TERMINATION

Each contract needs to state how and when it will end. You may include termination events such as a failure to pay or a late delivery. You might also decide to make a contract dependent on a certain period of time. Either way, it is good to have a clear, defining action that will terminate the obligations of one or both parties.

As you can see from above you need to make sure a contract is covered from beginning to end. It is best if business owners seek out counsel to assist them in creating contracts. Doing so helps them to limit liability and to avoid any undesired effects. If you have an issue in business law contact the Collier Law Office. 801-916-1910.