Understanding Contracts is essential to running a business. There are certain aspects of contracts that you need to understand before you read all of the agreements that will come to you during the course of running your own business. These are the contract basics. This section will take you through the different elements of contracts and how they impact your business.
Contracts are difficult and understanding them takes time. If you have a question about contracts or you do not see something you want to know, please let me know and I will work to get the answer out to you as soon as possible.
Contracts are self-contained explanations of a relationship between two parties. To better break it down, you need to make sure your contract is clear and is not subject to more than one meaning. You also need to make sure you have covered the what-ifs and the unexpected occurrences that may come up during the relationship. Contracts can be created in many different ways. One of the most important skills for an entrepreneur to learn is to get it in writing.
- Contract Drafting Basics – What Makes a Contract and Why it Should be In Writing
- Starting Your Contract – The Introductory Paragraph and Recitals
- Drafting Payment Terms – What to Think About When Drafting Payment Terms
- Changing Your Fees – How to Make Sure You Can Adjust Your Fees
- Amending Your Contract – Ensuring you Can Adjust Your Contract When You Need It
- Ending Your Contract – How to Draft a Termination Clause
- Renewals of Your Contract – Calendaring Your Dates and Protecting Yourself from unintended Contracts
- Miscellaneous Terms – Terms You Need to Include in Most Contracts
- Style Book – Some tips on how to draft contracts that are easier to read
- Signature Blocks – How to Limit Your Liability with a Signature
- Protecting Your Rights in Collection – When You Must Enforce Your Contract
Definitions and Basics
Contracts are the backbone of business. It is important to understand how it can impact your business. Some key parts of contract jargon will help you out. Though I try to define things as they are listed in this material, I want to make sure you have the basics down before we get started. It will not only help you understand what we talk about in the articles linked above, but you will also sound like the lawyers when you discuss contracts. Some important definitions when it comes to contracts:
Defined terms are the terms throughout contracts that are capitalized (sometimes bolded or underlined). Defined terms are used to make a legal document easier to read. Sometimes it is as simple as choosing a word to use every time “The Really Super Awesome Widget Company” is used in a sentence. Sometimes an entire list of items can be shortened into a simple word or phrase. This can help to substantially shorten a document’s length by avoiding the repetition of lengthy terms or lists.
Consideration is the exchange. It is a required element of any contract. There must be something exchanged. Consideration may be tangible (money) or intangible (love and affection). It doesn’t matter what it is, so long as the parties agree that it was an equal exchange.
Recitals are the statements made at the beginning of a contract. They typically state the reason for the agreement or facts about the parties that lead to the agreement. Historically, recitals have begun with “Whereas”. This, of course, is going away. Recitals are factual statements about the agreement that explain the agreement. They are not, however, a part of the agreement as they are statements of fact. Recitals are important because they help to outline the intentions of the parties. It helps the reader understand the rest of the contract if the intentions are clear.
An ambiguous term is one that has two or more meanings. There cannot be ambiguous terms in a contract because there is no way to determine the intent of the term. Ambiguities are determined when the entire contract is read, but the meaning of a term cannot be determined without more information.
Vague terms are allowed in contracts because you know the quality of the thing discussed, but you do not know the quantity. Though it is never great to have anything that is not certainly clear in a contract, vague terms are used all the time in contracts.