How to Write a Contract: Step-by-Step Guide + Considerations

Whether you are building a business partnership or service agreement, proper contracts reduce confusion and provide important protections to all parties involved.

In this guide, we’ll take you through the key stages of developing simple yet well-defined professional business contracts.

The Importance of a Formal Contract

A legally binding, written contract transforms handshake deals into accountable agreements. Without one, you lose legal recourse if expectations aren’t met or obligations aren’t fulfilled. Formal contracts clarify exactly what all parties are responsible for, while holding those parties responsible.

By reviewing terms up front, you prevent false assumptions and, ultimately, confusion. Contracts  outline project scope, payment terms and schedules, timelines, quality standards—everything required to get the job done right. Legally binding contracts give you confidence in securing revenue streams from clients and partners. They also provide an objective reference point if disagreements arise later. Most importantly, ironclad contracts can save you thousands in legal fees down the road.

Examples of When to Use a Contract

Whenever you sell goods or services, it’s important to write down the terms of the sale, namely in the form of a contract. Almost any sale or purchase of goods or services requires the particulars to be spelled out in some form, lest you open yourself up to liability.

A well-written contract will help you avoid problems that would otherwise arise with oral agreements or implicit assumptions. Here are some business arrangements that tend to rely on formal contracts: 

• Real estate transactions
• Employment agreements
• Contracts for consultant or a freelancer
• Independent contractor work
• Software licensing agreements
• Partnership formations
• Confidentiality agreements
• Service provider retainer agreements
• Intellectual property licensing
• Vendor or agency agreements
• Loan agreements
• Insurance policies
• Work-for-hire agreements
• Distribution agreements
• Franchise agreements
• Merger and acquisition deals
• Commission agreements
• Event planning contracts

There’s a reason this has become the norm in business. You lose clarity, legal protection, and confidence without valid contracts. 

Understanding Legal Contracts

Verbal agreements just don’t cut it in business. In order for your transactions to have real legal teeth with your clients, vendors, and partners, your agreements need the following:

• A highlighted offer and acceptance that’s well documented
• Value exchanged by the transacting parties
• Mutually expressed desire to be legally bound
• Legal ability to sign on both sides
• Shared understanding
• Crystal-clear wording, reasonable criteria, written clauses, signature on both sides, etc.

By covering those bases, you gain leverage to take legal action and enforce the agreements if necessary. If you leave them vague or incomplete, you lose recourse.

Elements All Contracts Should Include 

The presence of certain essential elements in a written contract ensures that all parties are protected, that the terms are clear, and that the final agreement is fully enforceable. These include: 

Party Information

Every contract should start by plainly stating the legal names and contact information of all parties that are part of the contract. This means:

• Complete legal names of all persons or business entities registered who are entering the agreement
• Details for contacting each party, such as addresses, phone numbers, and email addresses
• The legal standing of each party, for example, whether they are an individual, a corporation, an LLC, or some other business form

Note that if a written contract does not clearly state who the parties are, then the contract risks being declared ambiguous and, therefore, unenforceable by courts. 

Agreement Terms

A good contract spells out exactly what each party is bringing to the table. If you are unable to foresee the future and clarify the who, what, when, and how, that spells trouble down the line. The basics of any contract lifecycle are outlined by the terms, including:

• Details about product, service, and deliverable specifications—this should not be left to interpretation
• Contractual obligations so that you have both a legal right and a legal duty to enforce them
• The form of valuation and the times of payment 
• Unambiguous and inflexible timelines and deadlines for delivery

Note: Take excessive care not to serve an infringement notice yourself, as the cost of doing so can be huge!

The enemy of accountability is ambiguity. Disagreements mainly happen when one party believes that the counterparty has failed to fulfill a responsibility, while the blamed party believes that it is doing what was agreed to. Clarity throughout the contract is key. 

Termination

Sometimes, even the best business relationships need to end. Make sure to protect your interests with the following: 

• Guidelines for early exit: Protect yourself, but don’t make it too easy to escape
• Required notice periods: Enough time for both parties to change choices
• Steps for implementing a termination: Ensure that matters don’t drag on longer than necessary
• Financial and operational consequences: Anticipate effects on income, intellectual property rights, and so forth

Just like a trusty parachute, a good termination clause offers you reassurance that, if need be, you can end work without repercussion. No one wants to write a contract while assuming it will be terminated, but you’ll be thankful for an exit strategy in the event you need it. 

Indemnification

Every business, regardless of its size or industry, needs to include a solid indemnity clause in its contracts. This is true even for companies that enjoy good relationships with their customers and vendors. Nobody likes to think about it, but bad things can happen—and if they do, you want to make sure the other party is paying for the damages. This contract clause pushes the other party to cover the costs if they’re at fault.

An indemnity clause specifies which party pays what sums in case of costly legal disputes or breaches. It outlines the compensation obligations in a way that protects both parties from unfair costs.

For example, if your vendor does not deliver services on time (s a violation of the written contract), your company could lose a huge amount of revenue. Indemnity helps you recover that lost revenue.

Dispute Resolution

Maintaining valuable business relationships and avoiding lengthy, costly litigations requires settling contractual disagreements amicably. So, having a framework for dispute resolution is essential. This clause describes guidelines for mediation—the first step in the problem-solving process before legal professionals and courts get involved.

When the parties to a contract are not in agreement with regard to performance, the aggrieved party must inform the other side of its grievances. After providing notice of the grievance, the parties must renegotiate the contract in good faith, and—with the help of an objective third-party mediator, if necessary—reach a compromise that allows fulfillment of the contract. 

Another aspect, “force majeure,” recognizes that extreme events could absolutely prevent any contract from being fulfilled without anyone being to blame for it. Think of natural disasters or certain supply chain interruptions. In any event, when we’re talking about serious “acts of God” or extreme forces that could stop progress in its tracks, this suspends duties and obligations until those tough times are over.

Date & Signatures

Delineated dates and signatures make it clear that the contract is solid and binding. 

Key elements include:

• Effective Date: The commencement date signifies when the contract starts. It is the precise moment when the legal agreement goes into effect and obligations begin— which can prevent future misunderstandings
• Signature Fields: The contract is fully executable only when it bears the signatures of all parties. By signing (and naming), each party indicates their consent to, and willingness to be bound by, the provisions of the contract 
• Signatory Names and Titles: This accomplishes the important legal work of memorializing exactly who accepted these terms on behalf of an organization or individual
• Date Signed: This basic yet essential act provides the most fundamental key legal record concerning the exact dating of the acceptance of the agreement

How to Write a Contract in 5 Steps

Making an airtight contract from scratch requires skill, experience, and an enormous investment of time. Luckily, there are modern, innovative solutions to streamline this process. Opt for Signaturely’s template library of customizable agreements instead, and make sure you’re not missing anything with the usual contracts that you might need: vendor agreement, freelance work order, or sales of goods terms.

You can create a legally binding agreement in just five easy steps with these premade templates.

Step 1: Choose a Relevant Template

First, open the Signaturely template category, which is organized into sections like Land Purchase Agreement or Free Invitation to Bid. With around 50 in stores, you should be able to find one to fit your situation.

Select the layout for the contract that is closest to the contract you will be utilizing in the next stage of your project. You can fill in fields in your legal document that allow you to specify terms that are unique to your project, while retaining the standard clauses of a contract. If you are using a vendor format, for example, it will be very similar to what the folks in procurement will be using.

Step 2: Outline Parties & Basic Information

After you have selected your template, enter all the complete legal names and contact information for every party involved. Along with the primary individuals, make sure to list the officially registered business names. Provide a direct physical address, a phone number, and an email address to be used in any and all contract-related correspondence. Don’t hedge on this. If you know that the parties are certain to be using the officially registered business names, or some variation thereof, then use what seems to be working for them. 

Make it clear what each party’s exact, official company status is, like LLC, sole proprietorship, corporation, etc. This isn’t to create some enforcement scheme for later. It’s just to prevent any future confusion that could call the contract’s legitimacy into question.

Step 3: Detail Terms of the Agreement

Once you have established the basic information about the involved parties, detail the exact types of goods, services, products, or other kinds of deliverables that the contract covers. This requires a level of specificity that might seem almost redundant, and it involves:

• Providing the kinds of details that any reasonable person (or court) would expect to be in a statement of work, including product specifications, deliverable milestones, viable outcomes, and deadline dates
• Identifying the laws and regulations that apply to the kind of work we govern
• Specifying the expected work performance and end results
•  
• Providing a payment agreement schedule that is tied directly to the delivery schedule. 

Step 4: Define Length & Exit Plans

Next, establish the duration of the contract—when does the work begin, and when does it end? For most contracts, these dates span several months to a few years, depending on the scope of the project.

Furthermore, consider the possibility of extensions when building your agreements. For even more flexibility, include terms for renewing contracts post-initial period if both parties wish to continue their amicable relationship.

Things happen, of course—new priorities, budget shifts, even pandemics. Plan for early termination of your contract for convenience or in response to a breach of contract. As outlined above, a “force majeure” clause explains what a supplier must do if an unforeseen, substantial event—such as a natural disaster—occurs and slows or stops delivery. 

Step 5: Sign & Securely Archive Deals

Once all the t’s are crossed and i’s dotted, use Signaturely’s e-signature workflows to gain sign-off from all required parties in the order specified, right up to the final one.

Afterwards, have the platform guide your signers through the process of reviewing terms and affixing binding digital signatures to them with just a few clicks. If deals get delayed, Signaturely can even nudge signers to finalize documents.

Completed and executed agreements are stored securely by Signaturely and can be opened only by the parties to the agreement. 

Top Tips for How to Write a Contract

Use these simple tips to turn agreements into completely secure contracts with no loose ends. 

Be Clear With Language

When it comes to review and signing, legalese is not your best friend. Use clear words that express clear commands and have clear meanings. Anyone reading this text should not doubt what is being said. 

Best practices here include:

• Rewrite the existing written agreement in simple, plain English
• Use more periods to clarify your thoughts
• Use the key points of the contract like a bulleted checklist. Moreover, break them into short, paraphrased lines
• Make sure to explain any acronyms or niche concepts that are important for the deal

Use Consistent Terms

Words have nuances. Define important ones explicitly at the start before using them throughout the legal agreements. This prevents conflicting interpretations down the line.

For instance, specify the markers that identify the start and end dates, quality score, force majeure events, etc., which will later be referred to. Also, set a format for “spelled-out vs. abbreviation” to avoid confusion.

Plainly Define Party Responsibilities

Nothing deflates deals faster than mismatched expectations. So, make it crystal clear who does what and when, and that means putting it down in writing. Action items, deadlines, payment terms—whatever you think might be remotely relevant to your partner—should be clearly delineated in the texts and emails that form the trail of your partnership.

Set up regular review meetings to assess progress on both sides. Call out specific numbers and the plan to determine if the work proceeds as expected. Also, call out the plan for potential conflict resolution. Tackle and agree upon these terms from the start to avoid headaches later.

Keep Contracts Updated

Connections and rules change, so it’s important to look at existing agreements and renew them annually, at a minimum, to keep the terms in sync with continuously changing conditions that could otherwise lead to conflicts.

Revise contact details, fees, provisions affected by new legislation, or project scope if it changes. Set up a straightforward way to sign off on amendments that need just one more signature in order to become effective.

Merely shoving ancient contracts into a drawer until they lapse is not a good strategy. Why? Because it is far better to keep the terms of your contracts aligned with current realities—and far less likely to lead you into compliance issues or unnecessary disputes.

Consider Legal Advice

If the intricacies of contracts or the specialized industries in which you function make your head spin, then do yourself a favor and have lawyers on call.

Even if a lawyer is consulting for only a brief time, they can still yield professional advice that is both sound and useful. They can identify compliance gaps that might otherwise go unnoticed and suggest better ways to frame in-court issues that are complicated or controversial. 

Keep it Simple

Contract law often benefits from brevity. Focus on the provisions that are crucial for establishing expectations and for ensuring that all parties behave in an ethical manner. Do not overcomplicate the legal contract with provisions that serve no necessary purpose. 

Lean agreements make it clear that the main thing is to build relationships. Begin with fundamental fill-in-the-blank contract templates that are already structured with all the necessary elements. This keeps things from getting overly complicated, and you can customize the templates where necessary.

Free Templates by Signaturely Make Contracts a Breeze

Signaturely provides free, legally sound templates for vendor contracts and other agreements. These templates allow for the standardization of basic clauses needed in any compliant, enforceable deal. But what makes the contract management software stand out is that it saves users from the tedium of drafting contracts from scratch. Signaturely’s core function is to help you fill in the blanks and make basic contracts work for your specific business situation. 

Try Signaturely’s free plan today to modernize and optimize your contract process from creation to secure archiving.

FAQs About How to Write Contracts

Here are some of the most common questions regarding writing contracts.

Final Thoughts About Writing Contracts

A good contract turns a handshake deal into a responsible agreement that avoids confusion. Using templates can save time, but don’t forget to customize the contract terms as per your specifications, requests, and needs.