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Things a Business Owner Must Do Before Signing a Contract

When two or more persons or parties sign a voluntary and legally-binding document containing all the relevant terms and conditions of carrying out certain activities for business purposes, this is called a business contract. Both signing parties are legally bound to follow these terms and conditions, violation of which could potentially incur certain penalties imposed by a court of law or other authorized body.

Business contracts need to have a few elements that ensure its success:

  • Parties: The stakeholders that intend to enter into the contract are called, the parties.
  • Signing authority: The people signing the agreement must possess a signing authority to sign the contract on behalf of their business.
  • Considerations: Refers to what each signing party will gain out of the entering into the contract, such as goods, services or payment.
  • Receipt of the contract: Each party should receive a signed copy of the contract.
  • Main clauses: Contractual terms and conditions must be specified in order to protect the interest of all parties involved. The main clause of the contract explains the services, their pricing, factors affecting these activities and compensation.
  • Additional Clauses: The rights and responsibilities of the parties, conditions under which the contract can be terminated, what happens if a party breaches the contract, method of reconciliation in case of a conflict; and many other important relevant details.
  • Date of signing the contract: A contract must have a date of signing, and sometimes witnesses to all signatories.

Need for Signing a Business Contract

Contracts can come in different forms, however, they must have some sort of proof that all the stakeholders are in agreement with all the stated terms and conditions, and unanimously intend to exchange the goods and services. The main goal of signing a written contract is to demonstrate and ensure that mutual agreement has occurred between the parties.

When signed, the written contract comes into legal existence, ensures the protection of the rights of every party and becomes enforceable by each signatory.

Although the signing of the contract protects the business as well as the parties involved, however, it is of utmost importance to have prior knowledge of what a business owner or other parties are going to sign. This means thoroughly reviewing and understanding the contract before signing it. Such review is important as not every contract is the same; some are very simple and easy; while others are very complicated and incomprehensible. Oftentimes, the services of a contract attorney might be needed in this regard.

When the obligations are written in a contract, it may be difficult for you to understand each term and condition. In such scenario, you must consider the following before signing it:

  1. Negotiating the Terms:

The first and foremost thing when a contract is presented, is to determine what the terms and conditions are, and to make sure these terms will not cause any damage to you or your business. Moreover, it is necessary at this point to find out what other parties want out of the contract.

When reading the terms and conditions, your business attorney should be able to help you understand what exactly you are going to sign.

  1. Name the Involved Parties:

A contract must identify all the parties involved. That means, using complete names, addresses, designation, names of the business or companies, etc., must be written clearly. The omission of any such name may result in usurping a party’s legal rights that can make the contract invalid or the business may face legal issues.

  1. Background Check:

Before entering into a contract with a certain business, it can often be beneficial to perform a background check of the other party involved. The history of a company can predict what the company may do in the future. For instance, if the company has breached any contractor has remained involved in some illegal activities, you will be unlikely to sign agreements with that business. The most important things that you need to check as a potential signatory from the public database is:

  • Check the legal existence of the other company
  • Contractor’s license
  • Regulatory compliance
  • Bankruptcy and litigation
  1. Ensure Your Business is Verified:

Before signing, ensure that the contract verifies your business and the name of the business is exactly the same as registered with the state. In case you sign a contract which is not properly registered, you will assume personal liability for the contract.

In addition to it, make sure your business is licensed and in legal standing to enter a contract.

  1. Understand and Cross Check the Business Terms:

Understanding the legal as well as business terms in the contract is very important to know the document you are going to sign. A Business lawyer helps in this regard and ensures that every term and condition as relates to such things as pricing, contract duration, monies involved, and other technical and business terms exactly reflect the parties and their agreement to these aspects.

  1. Risk Allocation:

It is a must to determine how the risk will be allocated. In general, the risk is borne by that party which can prevent loss. However, you must check the insurance requirements that will it be possible for you to obtain the required insurance while remaining in the budget.

  1. Ensure the Contract is in Line with State Law:

Many states have a requirement regarding business contract which must be followed. In case a certain contract does not meet that requirement, the contract becomes unenforceable and the contractor’s rights are compromised to enter into a business contract.

  1. Read the contract Carefully:

You may find yourself in a rush to sign the contract and may miss a few important things or may commit typographical mistakes that can change the meaning of a clause. Read the contract critically before you sign to ensure it is error free and there is no confusion in the text.

Author Bio:

Rex Christensen is a construction law attorney in Arizona and has dedicated his career to the craft and is ready to stand by your side should you have any construction law related issue at hand.

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