Contracts are a major part of doing business. Businesses have contracts with customers, suppliers, contractors, employees, and even those among owners and the company. Whether your business deals with a lot of these transactions or just a few major transactions, it’s important that the contracts you are executing are drafted correctly.
So how do you review a contract to make sure it contains everything you need it to so you can protect your business? That is a very loaded question because while contracts are simple in nature (“an offer that is accepted”) there are complexities that can cause major issues. I often tell clients they could draft 80% of the agreement that I draft for them; it’s that other 20% that causes problems for them. There are 5 basic things that you should look for in a contract: 1) Parties; 2) Price; 3) Payment Terms; 4) Property; and 5) Signatures.
1. Parties. It might seem obvious but naming the parties that will be a part of the contract is important. I have seen businesses attempt to use form contracts or documents they find online that don’t define who is agreeing to the terms of the contract. Another common mistake is not having the right parties named. It’s not uncommon for business owners to sign agreements where they are named individually or they contract with a non-existent entity.
2. Price. Defining the total price that will be paid can sometimes be tricky but still is important. Having a defined total price clarifies the expectations of the transaction taking place through the contact. Price does not always have to be monetary in nature. It is still important to define what is being exchanged.
3. Payment Terms. Payment terms define when and in what amounts payment will be made. These terms can also cover what happens in the case of late or missed payments. Making sure the contract is clear on when certain actions take place can help make sure the transaction goes smoothly because the parties know when and how they are expected to act.
4. Property. Property is a generic term I am using to describe what is being given in return for the price. Once again, a clear definition should be given on what is to be delivered and when it is to be delivered. Think about a contract for the purchase of a car. Simply writing that you are selling a vehicle can mean any number of things can be delivered for the price but the chances are there is a specific make, model, VIN, etc. that defines what is expected. That information should be clear in the contract.
5. Signature. Signatures are important because they are proof that not only have the signers have read, understood and agreed to the terms but they provide the capacity of the individual to bind themselves or the business they represent to the agreement. These signatures can be very important if a dispute is to arise among the parties.
These are 5 things to be thinking about when reviewing a contract. This is not an all-inclusive list because there are so many other potential specific terms and contingencies that can be important. There are specific terms that limit liability, ensure payment, and even save money and the reputation of your business if disputes arise. Contacting a Grand Rapids business attorney can save you a ton of time and headaches in this process. Those professionals know what potential issues might arise and how to protect your business from those issues.