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How to Draft a Business Transaction Contract

Your business transactions should always be supported by a contract that is legally binding on all parties. This secures the deal and holds non-performing parties accountable. As a small business owner, you can’t afford to invest your time, money and energy into a business transaction without protecting yourself. This article outlines the basic steps to go about drafting a business transaction contract.

  1. Gather the facts: who, what, when, where, why, and how. Discuss with the other parties on all the issues of the transaction. Come to an agreement first of what the terms will be so that drafting and revising the contract later will be a lot easier.
  2. Draft the skeleton of the contract. Depending on your own experience level and the complexity of the contract, you can (a) draft the contract, (b) find a template, or (c) hire an attorney. For most straightforward and basic transactions, you can usually find a template to start with. Companies like DocStoc are good places to look for a template to suit your specific business transaction. If you’ve done a similar contract, you can reference your earlier contracts to use as a template for the one you are drafting. However, some business transactions involve a lot of players and money and can become quite complicated. Some contract templates will not be able to address the different facets of a complex transaction and you may need to hire an attorney. Attorneys are especially useful because they have experience to know what additional clauses and issues need to be considered. They will know what problems can arise and how to address them now rather than argue over it later in litigation. Only you and the other parties know the complexity of a transaction and it should be a collective decision on whether to draft it without an attorney or to hire professional help.
  3. Modify the contract. If you decided to use a template, go through and modify the contract to suit your specifications. Many templates allow you to just fill-in-the-blanks with basic information (who, what, when, where, etc.). They also always come with boilerplate clauses, which are the generic clauses covering basic legal issues. Be sure to read those boilerplate clauses because you are still legally bound by the boilerplates. Change those as necessary.
  4. Consider all the “what-ifs” and add clauses as necessary. Templates will not address every single issue because you business transaction is unique. Don’t rely on a generic contract template to protect you. You have to consider all the possible what-ifs, discuss them with the other party, and add those provisions as necessary. Remember, vague or missing language = loopholes = possible litigation. If you have legal counsel, discuss with them what provisions you need to add to better protect yourself.
  5. Be sure your contract complies with all the local, state and federal laws. Generally, if you have a contract provision that is void by law, that clause gets thrown out. It’s better to be sure that all provisions in the contract are reasonable and legal. Check with an attorney if you have questions.
  6. Give all the parties ample time to review and understand the contract. If another party signs a contract without completely understanding it, you will run into problems in the future. Explain the terms if necessary and be sure that they are in agreement with those terms.
  7. Have everyone sign the contract and make copies. If necessary, you can notarize the contract and have them keep a copy as well. The contract is now legally binding.
 
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