It is difficult to imagine the activity of any company without contracts. Contracts are a marker of success and at the same time, they record all corporate events. However, it happens that the parties may make mistakes while drawing up contracts. To avoid unpleasant consequences, here are the top 5 most common mistakes.
1. Ignoring the requirements of the written form of the contract
All documents must be in writing. This canonical requirement has been in force for centuries and is unlikely to change in the coming years. The written form is necessary to confirm the validity of the document and also to protect the interests of the parties. It is good if there are several copies of the same agreement.
2. Inaccurate wording of clauses
When drafting contracts or agreements, it is necessary to use terminology that is uniform and clear to all. This will not only strengthen the legal validity but will also help avoid disputes about all or some of the clauses. Before signing, you should make sure that the other party understands the contract clauses as well as you do.
3. An inadequate dispute resolution mechanism
No one can foresee when something might go wrong between partners. Having a dispute resolution section or clauses is just as canonical a rule of contract drafting. If this canon has not been followed, there can be serious consequences in the form of litigation and disputes, which will be tedious for everyone. In addition, having a conflict resolution clause will demonstrate respect and trust in the business partner.
4. Failure to observe due diligence principles
Legislation in many countries requires market participants to conduct a due diligence risk assessment. If such assessment has not been carried out before signing the contract, it will not only lead to penalties from the state authorities but will also increase the financial and reputational risks for the parties.
5. General non-compliance of the contract with legal regulations
Depending on the specifics of companies, there are legal requirements for the drafting of contracts. These are not only general requirements – for example, written form, use of understandable terminology, presence of obligatory clauses – but also compliance of provisions of contracts with effective norms of law, both at the state and local levels.
Is it possible to avoid mistakes when drafting contracts?
The risks resulting from mistakes in drafting contracts are real for the parties. However, they can be avoided (at least in part) by using simple advice:
- Draw up several preliminary versions of the agreement. In this way, you and your partner can choose the best and most beneficial option for everyone.
- Discuss each point. It is advisable to have a preliminary meeting and discuss each point of the agreement to draw up the most acceptable option.
- Consult with lawyers. Not only your in-house legal department can be involved in drafting contracts but you can also hire outside legal experts who have expertise in this area. In-depth consultation will help to detect errors at the stage of discussion and prevent conflicts in the future.
- Do not use a ready-made version of the contract. Each company may have its own standard form of contract. However, if you want to strengthen the legal validity of the agreement, depart from the standard form and change it as necessary.
Preventing mistakes is always easier than solving them. If you have any doubts or fears, enlist the help of qualified professionals.