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3 tips for drafting more effective business contracts

On Behalf of | May 21, 2024 | Business Law

Businesses of all sizes and purposes rely on contracts to make operations predictable and profitable. Companies sign contracts when they hire new workers, when they need supplies delivered by vendors and when they rent a new commercial space. Contracts help make business operations more controllable. They clarify a company’s obligations to others and help enforce agreements in cases where one party defaults on their responsibilities.

Frequently, those who own or operate companies don’t invest adequate time and care in the creation of contracts. They may use boilerplate documents that they downloaded from the internet. That approach might mean that the contract is unenforceable or that it does not provide optimal protection for the organization. The three tips below can help ensure that a business’s contracts serve their purpose.

Each situation demands its own documents

All too often, people feel comfortable using basic boilerplate documents for even complex situations. Whether hiring a new manager or renewing a lease for a retail space, creating a custom contract can help ensure better protection for a business. Even situations that are similar to one another, such as acquiring talent for different positions within the company, may require unique documents for each individual agreement.

Special clauses extend more protection

There are many different protective clauses that companies can integrate into contracts. A client or customer contract could feature clauses imposing fees for late payments. Clauses with vendors might include confidentiality agreements to ensure that one company does not disclose sensitive information that employees there uncover due to working with the organization. Many contracts might benefit from dispute resolution clauses. Thinking about the unique liabilities that arise in different business arrangements can help companies add the right terms for proper protection.

Contracts should make obligations clear and enforceable

Discussing what each party expects from the other in depth in a contract is crucial to ensuring a positive working relationship. Employees may come to the table with certain unspoken expectations, such as a belief that they deserve performance bonuses or severance pay. Service providers might cut corners on the labor performed for an organization unless there are very clear expectations outlined in the contract. Many contract disputes arise due to differing interpretations of contractual obligations. It is important for those negotiating an agreement on behalf of a company to be very clear about what the company intends to provide for the other party and exactly what it expects to receive in return.

Drafting bespoke contracts for different company transactions can optimize the protection derived from formalizing business arrangements. The savvy use of contracts can minimize disruptions to business operations and help protect a company’s reputation.

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