Contractual Agreement

So, lately I've been talking to my friends who either own businesses that offer services or are thinking about it. And one of their biggest concerns is creating and having a contract. They've been asking questions like, "Why would I need one?" and "What would it say?" etc etc. So, I figured I would address this issue in this week's posting.


 Who needs a contract?:

First, let's discuss what type of small businesses would need a contract.  Any business that is providing services as an independent contractor like an event or wedding planner, buying or selling goods without an established distributor, distributing equipment, or selling or leasing  real estate. You also need a contract if you have partners, employees or even selling your business. Having a contract would first guarantee your services to your customer and THEN ensure that they pay you! Also, with business partners, things can somtimes get sticky so you want to make sure everything is divided properly, to avoid nasty break ups :).


What exacly is a contract?:

Now, what IS a contract, you ask? Well, The World English Dictionary defines a contract as the following: "to enter into an agreement with (a person, company, etc) to deliver (goods or services) or to do (something) on mutually agreed and binding terms, often in writing." In order for a contract to be valid, both parties need to sign and agree on terms listed in the contract.


What type of contracts are there?

There are two different types of contracts. First, there is an Oral Contract which is when people speak on the terms and conditions of the business transaction. Contrary to popular belief, these are legally binding contracts. The only thing is it is harder to prove who said what in a court of law.


The second type of contract is the Written Contract. This is the most common type of contract and obviously easier to prove in the court of law. Usually a contract is written to determine the job that needs to be done and what is going to happen after that job is done. If the people who are involved with the contract, do not keep up their part of the bargain, they can be sued. 


What should it say?

Well, there are several contract-writing softwares out there that can help you with the actual wording of the contract but I will give you a general idea. Remember, you want to be very specific about what is said in the contract.  Unless you are a lawyer, you don't have to use legal terminology you just have to be clear on the expectations of both parties.


You want to make sure you have the following features in your contract:

~Date of contractual agreement and expiration of contract

~Name of everyone involved- i.e. customer, owner

~The services taking place for the contract- i.e. Company agrees to decorate Customer's house by 5/6/12.

~The payment amounts and DUE DATES- i.e. Initial Deposit, Amount Due after decorating is done

~Any interest that would take place if the payment is not made on due date

~Expiration dates for the contract

~Terms and conditions if contract is broken- i.e. If either party does not adhere to terms on contract legal action will take place

~Terms and conditions for someone to cancel or break contract before due date- i.e. If Customer breaks contract before job is done, the deposit is non-refundable. If Buyer breaks contract before job is done, the Customer will receive their deposit via mail.

~Signature of both parties


If you include all this in your contract, you should be fine! All grounds should be covered. Make sure you go through every aspect of the contract with your customer, answer and ASK all questions. Do not assume that they understand all the terms of the contract. Make sure you also review your state's laws on contractual agreements. They might have certain things that must be stated in the contract.


Lastly, at the end of the day, if you're still unsure about the validity of your contract or NEED that legal terminology included, then consult a lawyer. They will be able to help you ...for a small fee.


For online resources or sample contracts you can visit these sites:

allbusiness.comsample contracts - sample contracts 



Tamara Garrison-Thomas

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