Plain Language Contracts
What types of contracts do small businesses need? Whether it’s an agreement between partners or with independent contractors, a small business needs a carefully drafted contract that is easy to understand.
Contracts can never be overrated in business no matter how small the business is. A contract is a binding agreement between two or more parties that is enforceable by law. If it’s not in writing, it’s usually not legally enforceable. Once a written contract is signed, both parties must abide by the terms, which is why it is essential for business owners to understand the legal consequences. BEFORE you ever use a form or sign a contract, please have an attorney perform a comprehensive review.
Contracts are important when operating a small business and they are one of the leading reasons small business owners end up in court. Yep, you will find yourself in a legal mess because either:
- You rush into signing a contract too quickly without really understanding how the terms apply to you; or
- You simply fail to get a contract in place.
Elements Of A Contract
Visualize a contract as pieces of a puzzle that include:
- An offer.
- Acceptance of the offer.
- Consideration means the parties are giving and getting something. For
example, paying money in exchange for services.
- Creation of a legal intention by both parties. There is a presumption that
commercial agreements are intended to create a legally enforceable contract
and that social and domestic agreements are not.
- The capacity of both parties to enter into a contract. Persons of inadequate
mental capacity cannot fully appreciate the extent and nature of their actions
and are consequently in no position to enter into a contractual relationship.
BENEFITS OF A PLAIN LANGUAGE CONTRACT
Thankfully, today contracts are now easier to read and understand, unlike the days when a lawyer was paid by the word. These “wordy” contracts contained convoluted language handed down from one transaction to the next through untold generations of lawyers which is known as “legalese.” Wordy contracts can be a minefield for ambiguity and incomprehensible provisions. A well-written contract should:
- Define its terms
- Eliminate ambiguities
- Minimize “Legalese”
- Plan for “what if” contingencies
- Use short sentences
- Avoid passive voice
- Address all issues
- Avoid repetition
- Be consistent in form and substance
- Use simple sentence structure
- Be tailored to the type of business, business operations, and to the individuals involved
Don’t Zone Out On The Fine Print
Every contract contains “boilerplate” terms that usually appear at the end of the agreement. Never underestimate boilerplate provisions, and always check them carefully. Boilerplate provisions usually include:
- Rules on how the agreement will be interpreted
- What law will govern the subject matter of the contract
- Whether the business contract can be assigned
- What happens to the entire agreement if its provisions are found to be invalid by a court
- Whether third parties are deemed to be third-party beneficiaries of the agreement
Remember that every clause in a contract may be negotiated – even the boilerplate provisions.
One of the many reasons why your contract should be drafted by an attorney and not downloaded from an online resource is to avoid the danger posed by terms that are not applicable to you or your business. Online forms are risky, and the terms included will not apply in every circumstance which will set you up to fail when the deal falls apart. Litigation is time consuming and expensive, and your business relationships may be irretrievably damaged if litigation is necessary to resolve a dispute over the meaning of ambiguous and inapplicable terms.
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When it comes to legal issues for small businesses, the overwhelming cost of fixing a problem outweighs the investment of doing it right from the start.