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Avoid These 5 Mistakes When Drafting A Contract

Friday, January 22nd, 2021
man in blue shirt drafting contract

Contracts are complex documents that are required when starting and running a business. When drafting these documents, you must be aware of your own policies as well as local, state, and federal regulations. It is important to be aware of what can happen if your contracts aren’t created properly as well. Here are some mistakes to avoid when drafting your next contract:

1. Not getting everything in writing

You may feel as though you can trust the person you are making an agreement with, but you should still get everything about that agreement in writing. Some types of contracts that you should always have in writing include employment contracts, partnership agreements, shareholder agreements, vendor contracts, and any contract related to the sale or long-term lease of real estate.

2. Using vague or ambiguous terms

A contract should clearly and unambiguously state the terms and conditions of the agreement. Misunderstandings can happen if you are vague or use ambiguous terms, which can cause issues or disputes in executing the terms of the agreement. This is why well-drafted contracts provide specific terms at the beginning, like “parties” and “agreement.” These terms often take on different legal meanings than their normal definitions, so be clear when using them and define terms within the contract if necessary.

3. Not outlining dispute resolution clauses and conditions

As uncomfortable as it may seem, you must consider what will happen if there is a dispute related to the contract. Failing to think about dispute resolution will only create problems later. If you aren’t prepared for any foreseeable issues, legal problems could arise, and thinking about dispute resolution at the outset can help save time and money if there is an actual dispute in the future.

There are many reasons why dispute resolution (mediation, arbitration, or litigation) may be needed. These include breach of contract or fiduciary duty, missed payments, a failure to assign authority, and more. The best way to avoid disputes is to have a solid contract from the beginning. Still, your contract should specify, at a minimum, what form of resolution will be used and what the damages or remedies will be.

4. Failing to do your due diligence

When you draft a contract, you should know who you are making an agreement with. This is true whether you are hiring an employee, starting a new business partnership, or buying the assets of a company. Be sure to ask questions and research the person, people, or company you are entering an agreement with. You can start by asking the questions below.

  1. What is their history? Is any business entity involved properly organized or registered in the appropriate state?
  2. Do they practice business legitimately?
  3. Have they been involved in disputes in the past?
  4. What were the results of those disputes?
  5. Are there any warning signs?

5. Failing to hire a reputable business attorney

One of the first steps you should take to ensure your contracts are solid is to work with a good attorney. Business and contract law can both be complicated. This is why it is important to work with an experienced attorney that understands local, state, and federal laws relating to the contracts you create.

Do you need professional assistance with drafting a contract?

If you would like to learn more about mistakes to avoid in your contracts, Brown & Fortunato is here for you. Our Finance & Corporate attorneys are experienced in working with businesses both large and small. Call us at (833) 228-6300 or Send Us an Email for more information.