Every business owner understands the value of solid contracts. These agreements govern relationships both within your company and between your company and other parties, protecting the rights of your organization in the process. Not all owners know which terms should be included in the contracts they use, however. Although every agreement is different, there are some provisions that nearly every contract should include.
Meeting the legal requirements
At a bare minimum, a contract must contain an offer (a proposal by one party with the terms of the contract), acceptance (agreement by the party to whom the offer is made to be bound by the terms of the contract), and consideration (something of value exchanged between the parties). But these items only scratch the surface of what your company’s contracts need to have.
There are some types of contracts that must meet certain standards in Massachusetts. For example, certain types of contracts must be in writing to be enforceable. If your contract falls into these categories, a court will not enforce an oral contract.
Other essential items for your business contract
A knowledgeable attorney can help ensure that your contract meets the necessary legal criteria to be valid and enforceable in Massachusetts. Beyond this, here are a few provisions your agreements should include:
- Complete and accurate identification of all parties. Some businesses go by a number of different names (including DBAs) or have affiliates, subsidiaries, and related organizations in their family of companies. It is critical that the contract accurately and completely identifies all parties, and that whoever signs on behalf of the parties to the contract has the authority to do so.
- Duration (term) of the contract and any automatic renewal provisions. The contract should clearly state the duration of the contract. You will also want to be mindful of any automatic renewal terms. For instance, some contracts will automatically renew unless the parties take some specific action.
- Default and default remedies. A default occurs when one party to the contract fails to perform its obligations. The contract should, first, define what constitutes a default. Since defaults can lead to costly breach of contract lawsuits, there should also be terms for how the defaulting party may remedy the default.
- Dispute resolution. It’s highly likely that a dispute will arise between the parties at some point. In many situations, it may be beneficial to both parties to engage in dispute resolution prior to (or instead of) a lawsuit. You should consider dispute resolution methods such as arbitration and mediation in drafting your contracts.
- Contract termination. When can a party terminate a contract? How is this done, and does the party need a specific reason? Does the termination have to be in writing? If so, to whom must it be sent? If the contract is correctly terminated, how do the parties formally wrap up their relationship so they can amicably part ways?
- Indemnification. The objective of indemnification is to protect a party from liability in the event a third party is somehow harmed. It requires one party to compensate another for certain losses. Since indemnification clauses could impose significant costs on a party, they should be reviewed with the input of an attorney.
The Benefit of Experienced Business Legal Counsel
As a general matter, you should also ensure that the contract correctly includes all terms that were negotiated between the parties. That, along with knowing which provisions are essential for a strong, comprehensive contract, is where having skilled legal counsel will make a difference.