1. Understanding the 7 Most Important Parts of Any
Business Contract
Successfullynavigatingandunderstandingthe basiccontractthat makesupthe backbone of all business
negotiationsandtransactionscanseemintimidatingtonew entrepreneurs andinexperienced
businessmen.However,understandingthe keycomponentsof the standardbusinesscontractdoesn’t
have to be so intimidating.
Start by identifyingthe importantpartsof the contract and understandingthemwithinthe contextof
the contract as a whole,thiswillprovideanybusinessmenthe foundationneededinordertobeginto
understandandutilize businesscontractsinsteadof beingintimidatedbythem.
Here are the most importantpartsof anybusinesscontractas well askeypointtokeep inmindabout
themwhenyouare inthe negotiationprocess:
1. The Parties Involved in the Contract
The partiesinvolvedinanybusinesscontractare those negotiating,orcomingtoan agreement.Parties
can be literallyanythingfromagovernment,toanindividual,toa large corporation,orevenan NPOor
international charityfoundation.Yesthisseemsbasic,butthere are some thingsyoumustkeepinmind
whenreviewingthe partiesof anybusinesscontract.
What to look out for:
All partiesina contract mustbe fullyandproperlyidentifiedinordertoensure the contractislegally
binding.If,forexample,aname ismisspelled,thatpartycan come back and claimthere wasneverany
enforceable contractinthe firstplace. Here’salistof what to ensure:
 All namesshouldbe full,formal,legal names.Thismeansnonicknamesorabbreviations
anywhere.
 Make sure the namesof all spousesare alsoincludedif the intentisforthemto alsobe a formal
partiesinvolvedin the contract.
 Businessesshouldhave theirfull namesusedaswell.Thismeansitshouldinclude thingslike
LLP, LLC, S Corp,etc.
2. Exhibits and Schedules
These termsmightat firstseemratherconfusing,buttheyare simplyaformal,legal waytointroduce
additionaldocuments thatneed tobe attachedto the contract. Such documentscouldbe requiredfor
any numberof specificreasonslikesimplyforreference orclarification,oradditionally,toprovide the
requiredproof forsome aspectof the contract
What to look out for:
WhenreviewingExhibitsandSchedulesinacontract, keepaneye outfor any of the following:
 Are all documentsreferencedwithinthe contractactuallypreparedandattachedtothe
contract? Failure toinclude themcouldrenderthe contractunenforceable foravarietyof
reasons.

2.  Are the documentsreferencedclearandeasytounderstand?Dotheyprovide the referenceor
proof the contract claimstheydo? Don’tjusttake anotherpartieswordfor it,but actively
examine suchdocumentstoensure theyare accurately representedwithinthe contract.
3. The Recital Section
Don’tconfuse thisfora publicconcertor speakingengagement.Inthe contextof a businesscontract,
the recital isa section,atthe beginningof acontract, whose purpose istoquicklyilluminate the intent
of the contract. It can helpclarifyanydifferencesininterpretationsof the intentof the contract.
What to look out for:
Whenreviewingthe recital section,keepthese importantpointsinmind:
 The recital section is notlegallybinding.Itissimplyforclarification.Therefore,statementsinit
shouldbe repeatedelsewhereinthe contract.Alwaysensure significanttermsof the contract
appearwithinthe mainbodyas well aswithinthe recital section.
 Pay attentionto the language of suchtermsin the bodyof the contract. Theyshouldfollow
language like “The partiesagree asfollows…”If not,the contract couldbe foundtonot be
legallybinding.
4. The Acknowledgement of Consideration
The “Consideration”of anycontract isfairlyobvious.It’sthe products,services,goods,and/orfundsthat
are to be exchanged,thatis,the essentialreasonforthe contractin the firstplace.To sumit up,it is
whateach party isofferingthe other.
What to look out for:
The Acknowledgementof Considerationsectionof anycontractmust be carefullywordedsothatyour
contract will indeedbe “goodandlawful.”Doingsowill ensure itisbindinginthe eventthe otherparty
attemptslitigation.Here’sanexample of the legal language typicallyusedinthe Acknowledgmentof
Considerationsection,you’llbe sure towantto check anycontract youplanon signingforsomething
like the following:
“For good and lawfulconsideration,thesufficiency which isacknowledged,and includesthemutual
representations,warranties,covenants,and agreementssetforth herein,intending to be legally bound,
the partieshereto hereby enterinto this agreement.”
5. The Terms of the Contract
Thisis the mainsectionor bodyof any businesscontract.Itneedstocontaina thoroughlistof all the
essential informationpertainingtothe contract. Everysingle lastdetail of the agreementshouldbe
coveredhere,includingthe thingsmentionedinthe recital.Anyandall of the followingpiecesof
informationshouldbe included:
 Quantityof promisedgoodsorproducts.
 A definedtimeframe forexpectdelivery.
 Anyconfidentialityconcerns.
 Anyappointedagentsresponsible forthe fulfillmentof the termsof the contract.
 The price of servicestobe rendered,technologiestobe developed,orgoodstobe delivered.

3. What to look out for:
See if whetherornot the termsof the contract indicate if the writtenandsigneddocumentcontainsthe
entiretyof the agreementornot.Thisisveryimportantas itwill determine,inthe case of litigation,
whetherornot the contract can be or wasmodifiedbyanyextraneousagreementsnotcontainedinthe
writtendocument.
In the eventthe statementisincluded, everything mustbeputinto the termsof the contract inorderfor
it to be binding.
6. Remedies
Each contract shouldcontainaRemediessectioninthe eventthatsomethinghappenstopreventone or
bothpartiesfrombeingable tofulfill the termsof the contract.Thissectionisjusta backup plan,it’s
onlythere tostipulate whattodo if the contract cannotbe fulfilled.However,itisa veryimportantpart
of anycontract as it providesaway toprotect the investmentof anypartiesnotinbreach of contract.
Thinkof this sectionasa “what to do whenthings gowrong”guide.
What to look out for:
It’swise to negotiate thissectionpriortoagreeingtothe contract as a whole.Oftentimesproof of loss
inthe eventof breachof contract is hard to ascertain,soyourbestbet isto define itinthe contract
clearlywithbothpartiesinagreement.
All actionsandremediestobe takeninthe eventthe contract cannotbe fulfilledmustbe clearly
detailedinthissection.Cautiousbusinessmenmayfavorlimitingthe availableremediestosomething
like “returnof earnestdeposit.”
7. Termination of Agreement
Thissectionof a contract isthe “EmergencyExit.”Life isunpredictable,andoftenthingshappenthat
cannot be foreseenandpreventone orbothpartiesfrombeingable tofulfill the termsof the contract.
Agreeingtowhatthese eventsare andhow to properlyendthe contractbefore anysuch conflictsor
issuesarise isa greatway to protectyourself fromunnecessaryhasslesorcostsinthe eventacontract
mustbe terminated.Here’salistof commonreasons to allow the earlyterminationof abusiness
contract:
 If all partiesmutuallyagree toit.
 By eitherpartyinthe eventitcannot be fulfilledandneitherpartyisatfaultfor this(Fire,severe
weather,theft,deathof keypersonnel).
 By the sellerorpurchaserif the otherparty has misrepresentedthemselves,theirservice,or
productin the contract.
 CovenantsandWarrantiescan alsoaffectthe earlyterminationof acontract as stipulatedinthe
Terminationof Agreementsection.
What to look out for:
Keepinmindthere are otherissuesatstake whena contract is terminatedearly.Docertainrights,like
that to confidentialityandnon-disclosure,continue?There are several rightsyoumaywanttoensure
your companyretainsinthe eventof anearly termination.Thisisthe propersectiontodothat.

4. Wrapping Things Up…
Nowthat youknowthe basics of what’sincludedinabusinesscontract,it’stime toput thatknowledge
to work.So whenyoureviewacontract,alwaysassume thateverythingthatcan gowrong,will.
Carefullycheckthe contractto see howitprotectsyou inthe worst imaginable circumstances.For
example,assumeabreachtakesplace and isfollowedwithlitigation.Whatdoyouneedto be protected
fromand preparedforinthat scenario?Thismustbe includedof the bodyof the contract before you
everagree to signit.
Neverthinkanythingwill gosmoothly.Always,alwayshave a“justincase” approachto ensure youare
protectedsothat yourlivelihoodisnotinjeopardyinthe event of abreach.Look for clausesthat
require mediationorarbitration,orconsiderincludingthemyourselfaspreventative stepstolitigation
inthe eventof a problem.
In the end,if youhave any doubtsaboutany clause or sectionof a contract, don’tsignit.Get your
questionsanswered,yourworriesresolved.Seeklegal advice,don’ttrustyourownknowledgeof
contracts if youthinksomethingisnotonthe level. The bottomlineisneversignanythingunlessyou
understanditcompletelyandknowyouandyour businessare protectedbythe termsof the contract.