How to Draft Your Own Contracts
A business is defined by its relationships. A business’ relationships are defined by its contracts. Contracts outline expectations, the work or services to be provided, timelines, dispute resolution, and other important factors.
Mindset
Drafting contracts/agreements is about foresight, anticipation, objectivity, transparency, and clear expectations. What issues may come up in 1 month, 1 year, or 10 years between your business and the other contracting party?
When investors come into a business they will want to see “under the hood” of the business, this often includes the status of a business’ agreements with suppliers, vendors, clients, employees, or contractors.
When do you need a Contract?
When do you need a Contract? Anytime there is a transaction for money or services or products. Specifically:
An agreement for sale of goods over $500
An agreement for over a year
A Promise to pay another’s debt
A lease longer than a year
An agreement for the sale of land
How do you draft a Contract?
Step 1: Put it in Writing (electronic works) and summarize agreement
(a.) Clearly identify the parties of the agreement (individuals + business entities).
(b.) Clearly identify purpose of agreement
Step 2: Term of Agreement
(a.) When/how does the agreement start?
(b.) When/how does the agreement end?
Step 3: Detail Products or Services
(a.) Outline precisely what each part is agreeing to do
(b.) Define what “completion” of each parties’ promise is
(c.) Itemize total cost of products or services
(d.) Set payment processes and deadlines
(e.) Spell out who owns rights to what (e.g. for creative services)
Step 4: Termination, dispute RESOLUTION, liability protection, indemnification
(a.) Define when and how parties can exit agreement and requirements for notice
(b.) State how and where (County + State) disputes will be handled (courtroom is last resort…think about alternative dispute resolution mechanisms such as negotiation, mediation, or arbitration)
(c.) Define who is liable for what and add indemnification clauses if necessary
Step 5: Signatures.
(a.) Have both parties sign and date with an acknowledgement all parties agree to be held accountable to the provisions in the agreement (*note: Electronic signatures are recognized in court as binding).