Business owners sign a lot of contracts throughout the course of their careers, and the smart business owners have their attorneys review the contracts before they sign them. Even though you have an attorney review all of your business contracts, you should still understand the basic parts of a contract so that you know what your attorney is talking about when they review a contract with you.
A contract is a long document that outlines the parameters of an agreement between two parties. Those parties can be individuals, or they can be business entities. The first part of any contract outlines very clearly who the two parties are, and how they will be referred to in the contract. This wording can be different from contract to contract, but the basic effect is still the same.
One of the most common misconceptions among people unfamiliar with contracts is that the agreement is the part that gives the details of the contractural arrangement. In reality, the agreement is the summary statement that explains what the contract is for, and what the contract hopes to accomplish. There are very few details in the agreement section of a contract, and this section is usually only a few sentences long.
The terms of a contract is the part that can go on for pages and pages, and it contains all of the details regarding the contract itself. The clauses within the terms can be different based on the contract and the industry. For the most part, the common clauses you would see in the terms contract include:
- Liquidated damages
- Scope of work
- Choice of law and forum
- Indemnification of parties
- Arbitration or settlement
- Project timeline
- Attorney fees
- Waiver or non-waiver of damages
It is not uncommon for specialty clauses to be included in a contract to help more clearly define the scope of the agreement. Contrary to popular belief, contract clauses and terms can be adjusted after the contract is signed, but it takes a long process to get it done.
Contract terms can either be amended or altered. In the case of an amendment, both parties agree to add new clauses or terms to the agreement in a sub-agreement that is attached to the original document. In the case of an altered contract, both parties sign off on the changes and a new version of the contract is drafted and signed.
Any attorney will tell you that there has been more than one contract disallowed because of an improper signature page. Both parties should take the time to make sure that they are properly represented on the signature page, and that the date and all other information is accurate before signing the agreement.
It is easy for a business professional to take a business contract for granted, because the professional sees so many agreements in the course of a week. The proactive business professional respects every contract they sign, and they are always sure to have each contract reviewed by their attorney before they do sign it. One mistake in a contract could cost thousands, and the costs could apply to the party that leasts expects it.