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3 legal pitfalls to avoid when drafting a business contract

On Behalf of | Oct 11, 2022 | Business Acquisition

Your business contracts determine what obligations you have to your employees and what you can expect from your vendors or service providers. The more careful you are when setting the terms in your contracts, the more effective they will be at protecting your business and facilitating smooth transactions.

Unfortunately, contractual disputes are common issues in the modern business world, in no small part because people often make mistakes while drafting business contracts. What are the most common legal pitfalls people encounter when creating business contracts?

They aren’t specific enough

One of the easiest mistakes to make involves downloading boilerplate documents that allow you to just plug in company names and a few dates. Although such contracts made only take a few moments to create, they likely won’t do much to protect your business.

First of all, generic contracts aren’t explicit about what either of you expect from the other, which will inevitably lead to disagreements in the future. Additionally, if you don’t include certain terms, like your expectation for turnaround times or how much either of you will hey, there will be significant limits on your opportunities to enforce the contract later if there is a breach of your agreement.

They don’t address disagreements, disputes or breaches

Drafting a contract where you assume that nothing will go wrong leaves you inadequately protected. Depending on the kind of agreement you want to create, you might impose late payment penalties or other consequences for a breach of your agreement.

You might also include requirements for the resolution of disagreements about your contract. You might require either mediation or arbitration as a way to discuss the matter before either if you takes the issue to court. Preemptively planning for disagreements and breaches will make it easier for you to resolve them quickly if they do arise.

They don’t plan for the end of the contract

Eventually, you may need to renegotiate the rates agreed upon in the contract or otherwise revisit the terms that you set.

Establishing a period of time for which the contract will remain enforceable or discussing the necessary steps to terminate the contractual agreement are important inclusions that many businesses forget. If you address how much notice is necessary to sever the agreements, for example, you won’t have to worry about a vendor leaving you hanging without the supplies you need to ensure continued production of your most popular product. 

Learning from the mistakes that others make while drafting business contracts can help you avoid the same pitfalls for your company.