Contract Law 101: Business Contracts for Dummies
Business contracts are necessary for any successful business transaction, and as a business owner, you need to understand what makes up a contract. That can seem like a daunting task. After all, you’re in business, not law. But by fully understanding the factors that make up a contract, you can get ahead of your competitors. Here’s a guide to help you start to make sense of all that legal jargon.
Common Business Contract Lingo
When you’re dealing with business contracts, it’s important that you actually understand the language. You don’t have to be completely fluent in legalese, but you do need to know what different terms mean. Below are some common contract lingo used that can give you a starting point:
- Conditions: Major terms of the contract—if broken, the contract is breached
- Consideration: The quid pro quo—a right or benefit either side receives from the other
- Breach of contract: Failure by one party to uphold their part of the deal
- Underwriter: A signer of the contract
- Damages: A reward for a party’s breach of a current contract.
Heeding Caution in a Business Contract
If your business has a physical location, you’ve most likely already dealt with business contracts, like the lease to rent the office space you’re working out of. It’s important you understand the terms and conditions in your lease and any contract. This reduces your risk of breaking any hidden clauses and found at fault for breaching a contract. If you find hidden clauses in a previously signed contract, try to negotiate them out of the contract to avoid any fees or penalties.
Concluding a Business Contract
Before signing a business contract or agreement, go over it in depth to make sure it meets all of your needs and doesn’t have any gotchas. Take advantage of these tips to properly conclude your business contract:
- Sign and date your business agreement. All parties must sign on the designated block and date when they signed the agreement in order for it to go into effect. Keep the date you signed as the effective date to avoid any confusion as to when the contract began (since some contract can have retroactive effect).
- Make two copies of the contract. Making two copies of the document is useful to have for your own records, just in case you lose one of them later. You can also send out additional copies of the contract to your lawyer or any other qualified person who requests a copy.
- Initial any changes to the contract. There’s no doubt that changes will happen, but it’s important that you initial them, to show that you acknowledge them. This will help you avoid any faults in the contract and also legitimize your claim if the other party says the change never occurred.
- Be careful with fax signatures. Fax signatures are okay to use, as long as neither side of the contract document claims it’s a forgery. Since fax signatures are much easier to forge the original signatures, it’s wise to send faxed contracts along with the original ones for signatures.
And there you have it: the basics of contract law. Hopefully, this guide gives you a better idea of what contract law is and some best practices for signing a contract.