Whether you are selling your business or want to start a business partnership with another legal entity, you will need to enter into an agreement. This article includes some key aspects to think about when entering into an agreement and drafting a contract.
Oral or written contracts?
Both oral and written agreements are equally valid, however it is often preferable to have a written contract for a variety of reasons. Mainly, should an issue arise, written contracts inherently provide material evidence that an agreement was made, whereas an oral contract may be harder to prove the details of. Additionally, written contracts decrease the risk of misunderstandings in the terms of the agreement between the two parties.
Things to consider:
The first step is for the parties to negotiate and agree over the terms of the agreement. The terms should be specified as much as possible. A contract that is vague, ambiguous or incomplete will not be enforceable. Things to consider are for example:
• What is the core term of the agreement?
• What are the exact obligations on the parties?
• For how long will the agreement be in effect?
• What happens if one of the parties does not perform according to the contract?
It is important for both parties to consider all aspects of the agreement and its consequences. A contract is legally binding on both parties and the parties are obligated to perform according to the contract. Always make sure that both parties interpret the terms the same way to avoid future misunderstandings. Never be dishonest about your intentions or try to mislead the other party during the negotiations. Such behavior may lead to the contract being unenforceable or give the other party a right to escape its contractual obligations.
Before drafting the contract, the parties must make sure that there are no legal requirements the contract must fulfill. Generally, contracts do not need to comply with any specific formalities. However, there are some exceptions to this rule, for example in the area of property. Both parties must also ensure that their signers have the capacity to enter into the agreement, such as an individual him/herself or the director of a company.
There are several factors to think about when drafting a contract. Our experienced lawyers can help you through the process from negotiations to drafting the contract and settle the deal.
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