What makes for a Well Drafted Contract?
• 23 Mar 22
It’s no secret that becoming a successful entrepreneur requires grand plans and the guts to believe in them, yet it’s the fine print that ultimately makes or breaks a big idea. While business agreements and legal contracts are dryer work than brainstorming innovation, they are what enable an enterprise to grow and thrive.
Any legally binding, commercial agreement runs the risk of unnecessary disputes, loss and inefficiency if it does not clearly articulate the respective expectations, powers and terms of the parties involved.
Why badly drafted contracts cause problems
It can be tempting to rush through the contract-drafting stage in order to facilitate agreement and get to work, but a poorly written contract will inevitably steal more time and resources in the future. Ambiguous language, contradictions and presumptions open the door to a whole range of disputes, as each party will naturally interpret any inconsistencies to their own advantage. If circumstances change and the initial contract is not amended to reflect this, or if there is a term that each party unwittingly defines differently, or if specific timeframes are not provided, there is ample opportunity for misunderstandings or manipulation to occur.
Although legal contracts often appear as intimidating tomes of jargon, at their core they are simply a mutually beneficent agreement between parties – not so different from exchanges of trading cards and stickers on the playground. As you likely learned back then, a face value tit-for-tat can often have hidden consequences or pitfalls. And what happened if you wanted to swap back? Odds are those terms weren’t set. An effective legal contract not only sets out a clear understanding of what each party hopes to gain and intends to contribute, but also contingencies for potential problems and changes of circumstance in the future.
Some often overlooked issues to address when drafting a “contract”
There are a few key elements shared by all effective contracts:
It seems obvious but ensuring that all parties involved with the creation of a contract and agreement to its terms need to be able and willing to do so. That means identifying whether a contract applies to a company’s subsidiaries and whether the individuals signing the contract have the authority to do so.
Clearly defined terms.
A glossary of defined words and phrases can seem tedious and even unnecessary at first glance, but it is crucial for making sure all parties are on the same page. What one person considers ‘reasonable’ might not be universally shared. Be sure to articulate each party’s rights as well as their obligations.
It is critical to state early how disputes will be managed and the conditions under which each party can terminate the contract. Contracts are legally binding, but like any agreement between two people, requirements are bound to evolve and unexpected circumstances are bound to arise. Think of a marriage. Spouses routinely adjust the expectations of one another over the years thanks to the trajectory of careers, family obligations, the arrival of children, etc. established guidelines for conflict resolution, as well as when and how amendments can be made, keep contracts relevant and healthy.
How to write a good contract
Start by creating an outline or summary of what the contract needs to accomplish. Be as specific as possible about when, how, where and why certain events should happen as well as which party is responsible for ensuring they do.
Pay attention to grammar and punctuation. A poorly placed comma or misused verb tense can provide a gaping legal loophole down the line, so double and triple check that your syntax is working for you and not against you.
Use your resources. In the age of the internet, there is no reason for anybody to conjure a legal contract from scratch. The majority of countries and states have standard clauses that must be included in certain types of legal agreements, which can provide a foundation for you to start from. No template will provide everything you’re looking for but referring to several relevant examples will give you an idea of what your contract’s final shape should be.
When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.
We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.
*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.