Creating ironclad business contracts protects a company entering into a working agreement with a person or another business. Contracts make company operations predictable. They limit liability and legal exposure.
Generally, contracts must outline the responsibilities of each party to one another. In addition to talking about rent amounts, worker benefits or expectations for service providers, business leaders may want to add other terms that enhance contractual protections.
There are numerous details that businesses can integrate into contracts to make them more effective. The three inclusions briefly explained below can be very valuable for those trying to establish effective business contracts.
Severability clauses
Frequently, business contracts include a number of different clauses that impose different obligations on both parties. A violation of any of those terms could raise questions about the validity of the agreement in the future. Severability clauses help ensure that the contract remains valid and enforceable even after minor breaches.
Restrictive covenants
Agreements with new employees, executives or vendors may need to include noncompete agreements or nondisclosure agreements to protect the company’s competitive advantages. Restrictive covenants can help protect a company against misconduct that could harm its competitiveness on the open market.
Penalty clauses
Many businesses include penalty clauses that impose a fine for late payments. There may also be penalty clauses attached to restrictive covenants if one party discloses private information online, for example. Penalty clauses help deter misconduct and make it easier to hold the other party accountable if they violate the agreement.
Including the right terms in business contracts can set companies up for success. Strong contracts limit opportunities for conflict and help companies protect their most valuable resources.