How to Write a Business Contract (With Templates)

I. What is a business contract?

In essence, business contracts are created to formalize and facilitate the legal obligations owned by a business party to another. They are the backbone of every business relationship. 

II. Why are business contracts important?

Business contracts are utilized by companies to record rights, responsibilities, obligations, and transactions. Written business contracts also ensure that private promises are legally enforceable by allowing you to have a legal right to enforce them in court. For example, you can seek damages as monetary compensation when another party has breached the contractual terms. But without contracts, the chances of the other business parties’ oral promises being legally enforceable is slim since memories fade and disputes arise on the terms the parties agreed to. Having business contracts will leave a record of the exact agreements, keeping legal disputes and conflicts between parties at the minimum, maintaining the certainty of business agreements, and serving businesses well in case of a dispute.

However, a poorly-drafted business contract can have the opposite effect. This blog will help you understand the steps to properly draft a business contract. 

III. Components of business contracts

Despite there being various kinds of business contracts, all of them essentially boil down to the following components:

A. Offer

An offer is created when businesses verbally or have written let the other party know that they have an offer to be accepted by others. 

B. Acceptance

Acceptance is created when a party agrees to the exact offer from the other party verbally, written, or by action.  

C. Consideration

Consideration refers that there must be some form of monetary value that is agreed to be exchanged for something else of value between the parties. You must ensure that the consideration is clearly written and accepted in the contract. It is recommended to be concise and uses simple English. 

D. Capacity

You must ensure that all parties to the contract have the legal capacity to enter into contractual relationships. For one to have the legal capacity to sign a contract, that person cannot be minor, have a brain disorder, be under the influence of drugs or alcohol, or be without sufficient understanding of the language used in the contract. 

E. Intention 

There must be an intention to create legal relations between parties for there to be a contract. However, this is generally not a disputed issue since agreements formed between commercial parties are likely treated as having the intention to create legal relations. 

F. Confidentiality 

Confidentiality clauses are often included to limit what the party can disclose to others regarding the confidential and sensitive information of the company. 

G. Force Majeure

Force Majeure provisions free businesses from liabilities or obligations when an extraordinary event exceeds the control of the parties, which makes compliance with the contract by one or both parties impossible. For example, a COVID-19 pandemic is an extraordinary event that could prevent the deliverance of certain products, which can trigger the force majeure clause. 

H. Termination

Termination provisions provide parties with the mechanism to end a contract early without breaching the contract. This clause should clearly list out the circumstances in which a party or both parties agree to terminate the contract. 

I. Choice of Jurisdiction

The choice of jurisdiction clauses should state which jurisdiction's law applies to the contract. This clause affects the rights and obligations under the contract according to the interpretation of the contract expressed term and implied by the substantive law chosen by the parties. Eventually, the national jurisdiction would have an impact on the ultimate outcome of any litigation or arbitration disputes.

J. Dispute Resolution

This specifies how disputes are handled when an issue arises between the contractual parties. Examples of how disputes are usually handled include arbitration, mediation, or litigation. It is recommended to utilize alternative dispute resolution practices such as arbitration and mediation since they save time and money in resolving legal disputes. 

K. Damages

Damages refer to the financial compensation the other party will provide when there are economic losses caused by the failure to comply with the contractual terms. It is recommended to include a liquidated damages clause forcing the party in breach to pay a predetermined amount to the other party. 

IV. Steps in making a business contract

1. Ensure all parties have the legal capacity to enter into the contract. 

As mentioned above, for one to have the legal capacity to enter into contractual relationships, that person cannot be minor, have a brain disorder, be under the influence of drugs or alcohol, or be without sufficient understanding of the language used in the contract. 

2. Determine the consideration.

The consideration exchanged between parties must be clearly written and accepted in the contract. It can be in the form of goods, services, or monetary compensation. 

3. Determine the legal purpose of the contract.

The purpose of the contract must be legal. Any contract for an illegal exchange is invalid. 

4. Determine the contract terms.

The terms should facilitate the parties to reach their desired goal of the contract. 

This section should include the common components of a business contract mentioned in the above section. Plain, clear, and concise language should be used in this section. 

5. Offer the contract for acceptance.

After the contract is drafted, you can offer it to another party to accept or deny it. The other party may choose to make a counter-offer. In response, you can choose to accept it or deny it and create a new counter-offer. 

6. All involved parties sign the contract.

After a mutual agreement is made between the parties, all parties should sign the contract to validate it.

V. Common types of business contracts (with templates)

We have created various common business document templates for you to use:

(a) Partnership Agreement 

Partnership Agreements are used when two or more persons come together to manage a business with the intention of making profits. The agreement details the business structure of the company and how the business operates. The partnership agreement lays out the portion of the company owned by each partner, how profits and losses are split, and the division of roles and duties. 

Partnership Agreement Templates:

• 2 Parties - Neutral
• 3 Parties - Neutral
• 5 Parties - Neutral

(b) Non Disclosure Agreement

A non-disclosure agreement (NDA) is a legally binding contract in which an individual or business promises to keep certain information received from the other party confidential unless proper authorisation is given. 

Non Disclosure Agreement Templates:

• Mutual NDA for Business

• One way NDA for Business (Receiver)
• One way NDA for Business (Provider)

(c) Indemnity Agreement

An indemnity Agreement is a contractual and legal commitment to take responsibility for the losses of another person. 

Indemnity Agreement Templates:

• Letter of Indemnity - Shareholder to Company

• Guarantee and Indemnity - Counter Indemnity

• Guarantee and Indemnity - Loan Facilities 

(d) Franchise Agreement

Franchise Agreements are legally binding agreements in which the franchisee is given the legal right to establish a franchised business. 

Franchise Agreement Templates:

• Franchise Agreement - Franchisee
• Franchise Agreement - Franchisor

You may visit this link to learn more about Franchise Agreement:

https://docpro.com/blog54/how-to-draft-negotiate-and-terminate-a-franchise-agreement

(e) Settlement Agreement

A settlement Agreement is a legally binding contract between two parties to record the settlement of any disputes. 

Settlement Agreement Template:

• Settlement Agreement - Employment

• Settlement Agreement - Court Disputes

• Settlement Agreement - Alternative Dispute Resolutions

• Mediation Agreement - Agree to Settle

(f) Assignment of Contract

Assignment of contract transfers the obligations and benefits of a contract from one party to another party. 

Assignment of Contract Templates:

• Assignment Agreement - Third Party

• Assignment Agreement - Patent

• Assignment Deed

(g) Sale and Purchase Business Agreement

A Sale and Purchase agreement is a legally binding contract stipulating the conditions of the buyer and seller of real or personal property.

Sale and Purchase Agreement Template:

• Simple Sale and Purchase Agreement for Items

(h) Employment Contract

An employment contract stipulates the rights and obligations of both employers and employees. 

Employment Contract Templates:

• Employment Agreement - Junior Employee

• Employment Agreement - Senior Employee

(i) Independent Contractor Agreement

An independent contractor is an individual who is self-employed and is contracted to provide work or service to a business. They are not employees and do not receive employee benefits. An independent contractor agreement is legally binding and outlines the details of the business relationship between the independent contractor and the business. 

Independent Contractor Agreement Template:

• Freelance/Independent Contractor Agreement - Simple Job

• Director’s Service Agreement - Independent Contractor

(j) Non-compete Agreement

A non-compete Agreement is a kind of employment contract that prevents employees from working in direct competition against the company after the employment ends. 

Non-compete Agreement Templates:

• Non-compete and Non-Solicitation Agreement for Employment
• Non-compete and Non-Solicitation Agreement for Business

You may visit this link for more information and templates for Non-compete Agreement:

https://docpro.com/cat43/human-resource-employment/non-compete-exclusivity-agreement

(k) Bill of Sale

A Bill of Sale is a legally binding contract that records the transfer of ownership over a property to another party in exchange for money. 

Bill of Sale Templates:

• Bill of Sale - Personal Property

• Bill of Sale - Transfer of Vehicle Car

• Bill of Sale - Transfer of Vessel Ship Boat

(l) Purchase Order

A purchase order is a commercial document issued by a buyer to facilitate the purchase of products from the Seller and services from the Supplier. 

Purchase Order Templates:

• Purchase Order from the Buyer to the Seller for the purchase of goods
• Confirmation of Purchase Order - Business

(m) Warranty

A warranty is a written guarantee issued to the purchaser of a property by its manufacturer promising to repair or replace it when necessary within a specified period of time. 

Warranty Templates:

• Company Acquisition - Warranties

• Business Acquisition - Warranties

(n) Service Agreements

Service Agreements are legally binding contracts in which the service provider promises to provide service to its client. The Service Agreement outlines the terms, conditions, rights, and obligations of both parties to the contract. 

Service Agreement Templates:

• Service Agreement - Long Term

• Service Agreement - Software - Customer

You may visit this link for more information and templates for the Service Agreement:

https://docpro.com/cat48/goods-and-services/services-works-contract

(o) Website Terms of Use

Website Terms of Use is also called “Terms of Service” or “Terms and Conditions”. Website Terms of Use is a legally binding contract that sets out the rules and regulations for visitors to a business’s website. 

Website Terms of Use Templates:

• Terms and Conditions of Service
• Privacy Policy (with GDPR)

You may visit this link for more information and templates for Website Terms of Use:

https://docpro.com/cat65/intellectual-property-information-technology/terms-and-conditions-subscription-agreement

VI. Conclusion

Whether you choose to use a template, seek help from a lawyer, or draft an agreement from scratch, the most crucial thing is to ensure that all the key clauses are incorporated and that both parties are on the same page. Whichever clauses you choose to include depend on the nature of your business relationship and the project at hand.   

You may also visit this link for the top ten essential business contracts for startups and small businesses with templates included: https://docpro.com/blog55/10-essential-business-contracts-for-startups-and-small-businesses-with-templates

Please note that this is a general summary of the position under common law and does not constitute legal advice. As the laws of each jurisdiction may differ, you may wish to consult your lawyer.