Crafting a rock-solid, legally binding contract between two or more parties is no small feet. It's a crucial step in establishing a solid foundation for a business partnership, guaranteeing that both parties are aligned, legally bound, and shielded from unforeseen complications. While the task of writing a contract may seem daunting, there are ways to make the process smoother and less time-consuming.
Here at Indy, our goal is to make freelancing simple, and a big part of being a freelancer is keeping yourself protected from things like scope creep and late payments. In this article, we’ll show you some tips and tricks on how to write a successful legal contract between two individuals.
7 Common Types of Contracts
When writing a contract between two individuals, it’s important to understand the different types of contracts and their legal implications. Contracts can vary greatly depending on the parties involved and the services or goods being exchanged. Here are some of the more common types of contracts you’ll find.
1. Service agreements
Service agreements are commonplace for freelancers. These are contracts that define the terms and conditions of a service being provided by one party to another. These contracts typically include details such as the scope of work, duration, payment terms, warranties or guarantees, intellectual property rights, confidentiality provisions, and dispute resolution mechanisms. Service agreements help establish a clear understanding between the service provider and the client, ensuring expectations are met.
2. Employment contracts
Employment contracts establish the relationship between an employer and an employee. These contracts typically cover important aspects such as job responsibilities, compensation and benefits, working hours, leave policies, confidentiality and non-disclosure agreements, non-compete clauses, and dispute resolution mechanisms. Employment contracts provide clarity and protection for both employers and employees, ensuring that rights and obligations are clearly defined.
3. Partnership Agreements
Partnership agreements are contracts that govern the relationship between two or more individuals or entities engaged in a partnership business. These contracts typically cover aspects such as the distribution of profits and losses, decision-making processes, roles and responsibilities of each partner, capital contributions, dispute resolution mechanisms, and terms for termination or dissolution of the partnership.
4. Licensing agreements
These agreements serve as a strategic framework that enables businesses to leverage their intellectual property and expand their reach. By granting permission to third parties to use, modify, or distribute their products, services, or technology, licensors can tap into new markets and revenue streams while maintaining control over their intellectual assets.
5. Business confidentiality agreement
A business confidentiality agreement is a legally binding document that outlines the confidential information that must be kept private between two parties. The two parties of the contract are typically an independent contractor and another company, or two companies exchanging confidential information with one another. This type of agreement typically includes a clause outlining the specific types of information that must remain confidential and establishes consequences for any violations made by either party. This way both parties involved in the exchange can keep their sensitive data secure.
6. Agreement letters
Agreement letters are documents that must be signed by both parties when entering into any contract agreements in the business world. An agreement letter will outline all of the necessary details concerning what each party agrees to, such as payment terms, delivery dates, and more.
7. Asset purchase agreement
An asset purchase agreement (APA) is a legal contract that outlines the terms and conditions of the sale and purchase of specific assets or a business as a whole. It’s a common agreement used in mergers and acquisitions (M&A) transactions, where one party (the buyer) acquires certain assets from another party (the seller). This type of business contract must include details such as the buyer and seller's names, the amount being paid, items included in the sale, and other important information that will help protect both parties involved.
What's Typically Included in a Contract?
When writing a contract between two individuals, it’s important to include all the necessary details so that the document is legally valid. A broad range of topics can be included, such as other parties' responsibilities, confidentiality agreements, and more.
Understanding what should be included in a contract before entering into any agreement with another individual is essential for establishing a legally valid arrangement that satisfies both sides. Here’s the most important information you’ll need in your contract.
Parties involved
The first section of a contract establishes the identities of the parties entering into the agreement. This includes providing the full names and addresses of each party. It’s important to clearly specify who the contract is between and their roles or capacities in the agreement, whether they are individuals, businesses, or other entities. This ensures that both parties are properly identified and acknowledge their consent to be bound by the contract's terms.
Purpose and scope of the agreement
This section outlines the purpose and objectives of the contract. It describes the nature of the goods, services, or obligations that are being exchanged or performed. Clearly defining the scope of the agreement helps to avoid misunderstandings and ensures that both parties are on the same page regarding the intended outcomes of their contractual relationship.
Responsibilities and obligations
In this section, the specific responsibilities and obligations of each party are detailed. It clarifies what each party is expected to do or provide as part of the agreement. This includes outlining specific tasks, deliverables, timelines, and any performance standards that need to be met. Clearly defining these obligations helps to establish clear expectations and ensures that both parties understand their respective roles and responsibilities.
Payment agreements
It's important to include the terms of payment for both parties involved. The agreement should specify who is responsible for payment – typically one or more individuals or a limited liability company – and any business lawyers representing them. It should also clearly define the payment method, such as cash or credit card, that will be used by each party and when payments must be made in order to guarantee timely compliance. For small businesses especially, this type of clause can serve as an essential tool for protecting against potential losses due to non-payment from customers.
Confidentiality and non-disclosure
Confidentiality and non-disclosure provisions are crucial for protecting sensitive information shared between the parties. This section defines what information should be kept confidential, such as trade secrets, proprietary data, or customer information. It outlines the obligations of both parties to maintain confidentiality and establishes the consequences for any breaches of confidentiality. This helps to safeguard valuable information and maintain trust between the parties.
Termination and renewal
The termination and renewal section addresses the conditions under which the contract can be terminated or extended. It includes provisions for termination due to breach of contract, expiration of the agreed-upon term, or mutual agreement. It may also outline any notice periods required for termination. Additionally, if there is an option for renewal or extension, this section specifies the procedures and terms for doing so.
Dispute resolution
Dispute resolution provisions outline the methods for resolving any conflicts or disagreements that may come up during the term of the contract. This can include steps such as negotiation, mediation, or arbitration. For example, if one party breaches the agreement then there should be legal consequences outlined for both sides to abide by; guaranteeing that each party has their rights legally protected at all times. Including this section helps to provide a roadmap for resolving disputes amicably and minimizes the potential for costly litigation.
Force majeure
Force majeure refers to unforeseen events or circumstances that are beyond the control of the parties and may prevent them from fulfilling their contractual obligations. This section addresses the impact of such events, such as natural disasters, acts of war, or government actions. It defines the rights and responsibilities of the parties during these situations and may include provisions for temporary suspension or termination of the contract.
Amendments and modifications
This section outlines the process for making changes or amendments to the contract. It may specify that any modifications must be made in writing and require the written consent of both parties. This makes sure that any modifications to the contract are documented and agreed upon by both parties. By clearly defining the procedure for amendments or modifications, this section helps to keep the integrity of the contract and avoid any misunderstandings or disputes that may come up from informal changes.
How Long Does It Take to Draft a Contract?
Drafting a contract usually takes several hours, depending on how complex the agreement is and what parties are signing. It can take days or even weeks to draft contracts for larger business entities such as mergers and acquisitions, but most agreements between two individuals or businesses can be completed within 24-48 hours.
Generally speaking, it's important to make sure that all of the appropriate laws apply in your area when crafting any kind of contract agreement so that it remains legally valid; this could also involve researching any industry-specific regulations if need be. Being thorough in this step ensures both sides will receive the protection they need should anything go awry with regard to their partnership agreement down the road.
Despite being a taxing process at times, it’s essential for protecting everyone involved in any type of business transaction from legal disputes or other issues related to payment terms.
How Indy Can Help You Create Contracts
Indy makes it easy to write professional contracts with our legally-vetted templates. Here’s how:
- Choose a template: Choose the contract template you need and fill in your business details. That’s it! The Contract Wizard automatically updates the entire contract in seconds.
- Digital Assistant: Want to revise a section of a contract? The Digital Assistant can automatically generate content for the most critical sections of a contract, giving you a first draft that you can easily revise to fit your needs.
- E-signatures: Electronic signatures make it easy for you and your client to sign a contract, so you can start projects faster.
With Indy, you can create rock-solid contracts in just minutes. Get started today for free!
Wrapping Up
Crafting a contract between two individuals is like laying the sturdy foundation of a business partnership. It's a vital step that ensures both parties are on the same page, bound by legal obligations, and protected from unexpected twists and turns along the way. While writing a contract may seem daunting, seeking professional advice and following some handy tips and tricks can make the process smoother.
Want to spend less time creating contracts? We recommend signing up for Indy. Our legally-vetted contract templates will help you create, send, and sign your next contract in just minutes.
