Why Is It Important to Draw up the Right Contracts for Business?

When a service is bought or sold, or partnerships are concluded, there must be confirmation of this. Thus, the parties to the transaction minimize potential risks, provide themselves with a number of guarantees, and establish the conditions based on which they will cooperate. A contract is a document that has legal force.

However, it is important to compose it correctly. If the document is drawn up correctly, it necessarily defines the subject of the contract, contains the procedure or algorithm for providing the service, as well as payment, and includes deadlines for completion.

Our company works professionally in the field of establishing and supporting businesses. We provide a wide range of corporate services, including assistance in the correct preparation and conclusion of contracts.

Introduction to the Importance of Business Contracts 

Drawing up a contract is a responsible matter. This is one of the most difficult stages of concluding an international transaction because the further behavior of the parties will depend on how well the document is drawn up.

The contract stipulates the main conditions of the upcoming transaction: the rights of the participants, the main responsibilities, the liability that will arise for improper fulfillment of the terms of the contract, etc. If a conflict arises between the parties to the transaction, and to resolve it, it will be necessary to go to court, then this document will be fundamental when issuing the final decision.

Before starting to draw up a contract, the partners need to decide which state’s legislation will apply to this agreement. Persons taking part in an international transaction can independently determine the branch of law that most corresponds to this agreement. The choice of contract form is influenced by the following factors:

  • subject of the transaction;
  • completeness of obligations;
  • branch of law.

Often, when drawing up international agreements, standard templates of agreements are used.

The document must also spell out the guarantees, rights, obligations of the parties and sanctions that the buyer or seller may expect for untimely or improper fulfillment of the conditions recorded on paper. First of all, this is an agreement. In this case, each party assumes certain obligations.

When the document is drawn up according to all the rules and correctly, it will help save time and minimize financial losses when protecting personal interests in court proceedings, if it comes to that. With an agreement in hand, every market participant feels more confident.

The contract must comply with the legal requirements for the specific type of deal. In accordance with the general rules, the contracts stipulate the following:

  • subject of contract;
  • fixed price for the entire term of the contract; terms; responsibilities of the parties – what will happen if one of the parties does not fulfill the conditions; schedule for the execution of the contract if it is concluded for a period of more than three years and the procedure for changing the cost; the procedure and timing of payment for goods, work or services. In most cases, government agencies use standard contracts. They cannot be changed unless an error is discovered in the contract.

Conflicts in business in most cases are the result of poorly drafted contracts. People involved in business need not only to have determination, initiative, and financial sense, but also to understand the rules and legislation governing the market economy.

Contract drafting for Risk Mitigation and Rights Protection 

The basic principles for drawing up contracts are as follows:
Any contract must be concluded taking into account your legal rights and interests.

  1. Its provisions must not violate the norms of current legislation. Before you start drawing up a contract, study the basic regulations governing the branch of law within which you plan to conclude the agreement.
  2. Care must be taken to protect the interests of other parties to the deal.
  3. The obligations of other parties to the transaction must be strictly ensured by their responsibility.
  4. Clarity in business contracts: an agreement should not contain any legal danger. Otherwise, there is a high probability that the conclusion of the deal will fall through, as a result of which a carefully developed and planned economic project will be lost.

How to draw up a document correctly and take into account all the nuances? Thus, here we should mention well-defined contract terms.

  1. Identification of the parties: the contract must contain accurate information about the parties, including their full name, legal and actual address.
  2. The subject: a description of the goods, services or works to which the contract applies.
  3. Price and payment procedure: determination of the cost of goods, services or work and the terms of their payment.
  4. Deadlines for fulfillment of obligations: indicating the deadlines for the completion of work or provision of services.
  5. Rights and obligations of the parties: a clear definition of what each party must do under the contract and what rights each party has.
  6. Special conditions: it may include any specific requirements for a product or service, warranty obligations, etc.
  7. Responsibility of the parties: determination of the types of liability and the amount of possible fines for violation of the terms of the contract.
  8. Force majeure: the regulation of external circumstances under which the parties are released from liability for failure to fulfill obligations.
  9. Dispute resolution procedure: determination of ways to resolve disputes between the parties, for example, negotiations, mediation, arbitration or court.
  10. Final clauses: may include agreements on the application of the laws of a particular jurisdiction, the procedure for the entry into force of the contract, the terms of its validity and termination conditions.

Consider these criteria when drafting legal documents.

Protecting trade secrets is important to maintaining a company’s competitive advantage. The contract should establish measures to protect confidential information, including obligations of the parties to non-disclose and limit access to information.

An important aspect in terms of the legal enforceability of contracts and contractual relations is the timely and effective resolution of claims and disputes. The contract must provide for procedures for resolving disputes that arise, for example, through claims, mediation, arbitration or courts.

A few words as for business contract advantages. Here are several problems that the agreement solves.

  1. Records all agreements. The agreement specifies the terms, amount of payment and other conditions that will protect the interests of the parties.
  2. Helps you avoid losing money. But in most cases, the contract protects your rights.
  3. Shows the bank and the tax office that the deal is real. The bank may ask for an agreement if there are doubts about the legality of the deal.

When a court considers a dispute arising from an agreement, the agreement of the essential terms of which has not been confirmed, the court, on the basis of the relevant provision of law, which does not allow such an agreement to be considered concluded, must indicate this circumstance in the reasoning part of the court decision.

Before signing the contract, you should check the clarity of the text of the contract. This means that in the event of a dispute, the text of the contract must be interpreted unambiguously, i.e., ambiguous interpretation must not be allowed.

Contracts are an important part of economic activity. In business, well-formulated contracts contribute to the success of the transaction. It is therefore common practice to involve lawyers in drafting contracts to ensure that contracts comply with legal requirements.

Contracts must be in writing, which will detail the responsibilities and rights of the parties. Contracts drafted by lawyers provide assurance that the intentions of all parties are properly taken into account within the legal framework. Our company’s experts provide assistance in drawing up contracts and also conduct contract verification.

In order to insure yourself against problems with the execution of the contract, you should check your counterparties. An agreement must be concluded with a bona fide party. The bona fide party must be registered; have the necessary licenses; the authority of the manager must be confirmed; organization should not be in the process of liquidation or bankruptcy.

We guarantee strong contract practices. Our specialists will answer any questions that may arise related to any stage of concluding and signing contracts. We will make sure that you go through all stages of signing the contract on time and do not miss a single moment. Trust us now.

The article’s author is Denys Chernyshov – founder and CEO of the globally-famous organization Eternity Law International.