Understanding Business Contracts

April 1, 2013

By Ben Hartman, HunterMaclean

Special to Elegant Island Living

Whether you own a manufacturing company in Brunswick or boutique on St. Simons Island, business contracts can serve as valuable tools, clarifying the terms of a given agreement and helping minimize potential future disputes. The sale or acquisition of a business is a consequential event and the contract should reflect this degree of significance.

A business contract is a written agreement which must be signed by both parties in order to be legally binding and enforceable in a court of law. Performance terms, timelines and conditions can be negotiated by either party before the final contract is signed.

Although the specifics will vary depending upon the nature of the contract, here are some general tips to help maximize the effectiveness of any business contract and to reduce the chance of litigation involving a contract dispute:

Be specific. Too often, business owners make the mistake of drafting a contract that is short, basic and general. However, the “legalese” in a contract is there for a reason, as it describes the specific, binding terms of the agreement. Loose language can make the contract more likely to end up in litigation because the terms are too vague and open to interpretation. Make sure that your agreement is tailored to your specific deal.

Ensure compliance with federal, state and local laws. State and local regulations — as well as federal laws — may be relevant to a particular business contract. Consult an attorney to make sure the contract is in compliance with changing regulations. Current codes, statutes, laws and regulations must be considered to make sure a business contract fully complies with the law.

Plan for the worst-case scenario. Always think ahead to the worse possible outcome, so you can be prepared for breach of terms and be clear on the front end about how disputes will be handled. Write into your agreement exactly what you and the other party will do if something goes wrong. The contract should be clear on contingencies for various scenarios and spell out timelines in unambiguous language.

Read the contract carefully before signing. Review all contracts completely and read the fine print so the terms of the agreement are clearly understood. If a contract dispute goes to court and the issues in question have been clarified in a signed written agreement, a business owner’s claim that he or she didn’t read or understand the contract may not hold water. Review the representations and warranties to be certain that they are accurate. Otherwise, the other party might allege that there has been a breach of contract.

Ultimately, it’s wise to consult with an attorney before drafting or signing any business contract. An attorney can make sure the language in the contract is specific, negotiate terms, ensure compliance with relevant laws and help business owners reduce the chance of ending up in a contract-related dispute in the future.

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