Elements of a Business Contract

This will sound like a middle school English class — but, you must be able to specifically address the who, what, when, and why to have the basic building blocks of a business contract. I have encountered many clients who did not have all of these aspects pinned down. In these cases, I would counsel them, and either send them out to discuss the contract further with the other party, or negotiate the rest of these basic terms for them.

Who?

The “who” is obviously important. To draft a business contract, I must know whether you are dealing with an individual or a company/organization. Want must be specific and precise about the names of those involved. To identify the involved persons even more precisely, we want to document their address or state of origin. Personally, I like to have both the company and the individual named as parties in the contract, to ensure their involvement in the contract.

What?

The “what” goes to the heart of the deal. What is the party going to sell? What is the buyer willing to pay? Again, we want to be precise, so a detailed description of what is being sold must be stated in the contract. You do not want the other party thinking that they are going to get more than you have agreed to deliver. The “what” is where you catch any misunderstandings about the deal. And what are the terms of payment? You need to know not only how much will be paid, but when that amount will be paid.

When?

This feeds into the “when” of the contract. When is the product to be delivered? When will the payment be made? Does one party order the product from the other? If so, by when? When does the contract start? When does it end? There are plenty of “whens” in a contract.

Why?

“Why” gives details about many other things that need to be in the contract. Why are you getting into the contract in the first place? Why are you willing to give the other party payment terms that include credit? Not only does “why” lead to other terms that need to be stated in the contract, it also lends itself to critical thinking about the deal that you are making, and whether some contract terms need to be further negotiated.

Next Time…

In subsequent posts, I will address some examples of negotiation of terms, and just what does “boilerplate” mean.