Preparing and Understanding Your Business Contract: Part One

Signing a business contract is a big step for a startup company or small business owner. Your company is entering into a legally binding agreement with another party, and you want to make sure you get the details right. In Part One of this two part series on contract preparation and execution, our contract litigation attorneys in Pennsylvania examine the integral components you need in place before you sign your name. Understanding these elements may keep you from making a critical error in the contract process, which could come back to hurt your business in the end.

Correctly Naming All Parties Involved

business contract dispute attorneys

In business, there are usually two parties involved in a contract – the buyer and the seller. The language of the contract must identify the two parties and the roles each will fulfill. Avoid using the name of the person signing the contract in lieu of the company that person represents. Always name the company to bind the organization as a whole to the agreement. This also goes for your own name as well as it applies to your business, especially if it’s a corporation. If you use your given name, as opposed to your business, you’ll be responsible personally for the contract and will have lost any limited liability granted by your company’s filing status, which could protect your assets in the event of a dispute or non-delivery.

Clearly Naming Obligations and Responsibilities

contract details in PA

Read over sections detailing the obligations of your business and the other named party. Are all roles and responsibilities clearly defined in the agreement? Any ambiguity in the contract language regarding who does what can haunt your business, if there’s a disagreement after the contract is signed. For example, if you’re business is hiring a contractor to develop a marketing campaign for a certain product, make sure the contract contains all elements the campaign is to include, along with when each element is deliverable to your business. Our Pennsylvania business contract lawyers have experienced in calcifying ambiguous terms in written agreements. If you have questions, contact our office right away.

How Much Am I Being Paid?

contract compensation PA

Money can be a major cause of argument and eventual litigation in any business contract. The document must specific how much money each party receives for work performed, services rendered or products sold. As part of payment, make sure language included sets parameters for satisfactory performance or product condition as well as when items are due. Clear deadlines are an important component. An unclear depiction of the compensation structure in a written agreement can land both parties in a courtroom.

How are We Resolving Disputes?

business contract disputes in Pennsylvania

Questions and confusion will happen in even the clearest contract spelled out in the most precise language. Negotiating the mechanism of settling disputes ahead of time, in the agreement, can speed up the resolution process and keep your company from slowly stopping while you deal with a contractual issue. For example, agreeing to binding arbitration in the written agreement to settle disputes provides an expedited method of resolving issues with the contract in a way that can’t be appealed if one party doesn’t like the decision. Make sure your business gets to pick the arbitrator and choose the venue (state). This action can keep the process domiciled in the state where your business is located.

Can You Actually Satisfy the Terms of the Agreement?

Pennsylvania business lawyers

Is your company capable of living up to the terms of the agreement you’re about to sign? For example, if your company lacks the infrastructure to deliver a certain quantity of product in a fixed timeframe, don’t sign a contract that binds your business into doing so. Keep the terms of the contract within the capabilities of your company. Don’t risk damaging the long-term health of your company to satisfy a short-term agreement that you know the business can’t pull off.  Always create manageable goals.

Stay tuned for Part Two where we’ll discuss maintaining control of the contract once it’s signed, and how to avoid clauses that early termination and damages.