The Basics of Contracting

Discussion in 'Accounting and Legal Advice' started by NetMecca, Jun 27, 2013.

  1. NetMecca

    NetMecca Member

    One of the more challenging tasks for any new business owner is understanding the contracts that they inevitably have to create and sign on a regular basis. And sure you can hire a lawyer to do all these tasks for you, and though responsible it will prove expensive.

    So here is a quick short checklist for the most important things that need to be in every useful contract. Before starting it would be good to understand that the purpose of a contract is to create enforceable penalties for non performance. So when writing (or reading a contract), make sure to do it from this perspective.

    1. Names of parties. --- Be sure that each party to the agreement is clearly identifiable to someone that do not know them. Name, address, even ID or SIN numbers could be handy, and for businesses the business legal name, address and number could be added.

    2. Performance. --- Clearly define who needs to do what, where and by when. Remember deadlines and locations are important to measure performance.

    3. Penalties for non performance. --- This is the most important aspect of any agreement as an agreement without these are completely meaningless and pointless.

    4. Effective and Termination date. --- Be sure not to end up with open ended agreements. Have a start and end date, as well as a means for terminating the agreement in the mean time, should this be necessary. (e.g termination could also be a penalty for non performance)

    5. Signature. --- To enforce an agreement you need some evidence that the parties did in fact agree to uphold the terms of the agreement. Witnessed (or executed) signatures are often prove very helpful for this purpose.

    Remember also that you cannot enforce a performance that is illegal, so agreeing with someone that they should steal something for you, will not work.

    There are many other aspects, and if you are uncertain, it may be of value for your to retain the services of a lawyer. And for the sake of stating the obvious, make sure you read, and understand every agreement before you sign it. Not doing so will cost you for sure...

    Wish you all the best with your ventures

  2. A8ch

    A8ch Gold Member

    Thanks for a useful post!

    Sometimes, when the parties to an agreement are friends, they may be tempted NOT to spell out every detail in a contract, or even draw one up in the first place. They believe that the friendship itself will be sufficient to guarantee fulfillment or resolve any dispute that may arise later.

    That's a big mistake. You should never get the lines of friendship and a business arrangement mixed up. They should always be kept separate.

    A contract establishes the parameters the parties will have for legal recourse, should that ever become necessary. It is designed to protect, preserve and enforce each party's interest. Plus, having a suitable contract drawn up for any worthwhile business matter is simply to exercise common sense and forward thinking.

    In a worst case scenario, the failure to draw up a satisfactory business contract between friends, can result in the total destruction of that friendship when things go wrong.

    happywife likes this.
  3. Aron Prins

    Aron Prins New Member

    Thanks NetMecca! Just what I needed.
    Aron Prins
  4. sarahlovesfam

    sarahlovesfam New Member

    I could not agree with you more. I am battling that same issue now with some of my family members. Business is business. If it is not on paper it does not exist.

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