How to Draft a Watertight Contract

signature-962354_640When you’re running a business, you need legal contracts as a fact of life. When you run a small business, especially when you’re starting out, it’s unlikely you’ll have access to an inhouse lawyer for every contract you need. You’ll be working by customising templates, or reworking contracts you’ve previously used. Here are a few key tips to make sure your contracts cover what you need, and protect you, rather than opening you up to challenges and lawsuits.

Name Your Parties 

A key reason to be careful with a legal contract is that if you don’t draft it correctly, you can end up personally liable for debts or responsibility that should be carried by your company – if you’re writing a contract when you take a on a new employee, you need to make sure the parties named are your employee, personally, and your business entity. If you the contract is between you and your employee as individuals, you will be personally responsible for paying their wages, rather than using your company’s operating capital.

In the sad event of your company having to close, having all your business liabilities in its name will make the process of winding down and moving on to new ventures far more orderly and straightforward than an extended process of disentangling debts and payments from your own name – if this even proves possible.

Include All the Details

In the event of any kind of dispute, up to and including legal action, the only enforceable details are those that are contained in the signed contract: while verbal agreements are valid they are superseded by the specificity of a paper contract. Any agreements that aren’t fully spelled out in the contract are at risk.

A way to avoid this risk is to give the contact to someone else to read, who’s not privy to the negotiations. If they can read it, and summarise to you the agreement you thought you had, it’s a good contract. If their understanding is missing some key undertakings, you need to go back and add them in.

Be Direct 

If you don’t have access to a lawyer, don’t feel you have to right contracts in self conscious ‘legalese’. Particularly for a small business, it’s best for contracts to be clear about exactly what is being paid for and by who. Making a contract ‘sound official’ at the expense of clarity could have serious repercussions down the line.

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