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What do I need to know before signing a contract?

Contracts can be among the most powerful resources companies can utilize to protect themselves and their product. These legal documents can be essential when it comes to setting terms for relationships with buyers, employees, vendors and other parties, and they can establish critical guidelines for how certain business transactions must be conducted.

However, these contracts may not always be effective or executable. In some cases, clauses in the contract may be unnecessarily limiting or unfavorable to the other party and a transaction can fall apart. There may also be terms set in an agreement which are unlawful and could result in challenges to a contract. In some cases, an agreement could be completely thrown out because it or certain clauses are unenforceable. Before asking anyone to sign a business contract or signing one yourself, you may want to first consider some important factors about the document.

  • What it allows: A contract may include terms that specifically protect one party's ability to do certain things. If these seem overly aggressive or could damage the interest of the other party, the agreement may need to be revised.
  • What it prohibits: Often, we see provisions that prohibit certain actions or behaviors. Readers may be familiar with some of the more common provisions, like non-compete agreements or non-disclosure clauses. If a contract seems too restrictive or impossible to comply with, it may not be a good idea to sign it.
  • Dispute resolution clauses: Some contracts include clauses for how disputes between the two parties will be resolved. Before agreeing to something, it can be crucial to examine whether there are restrictions placed on how disputes will be resolved. In some cases, a person signs away his or her right to seek legal action and must instead participate in arbitration.

Reviewing these aspects of a contract before signing it or requiring others to sign it could prevent some serious and costly mistakes down the road. Further, having an attorney present to review the contract to make sure it is legally enforceable and to identify any potentially questionable sections can help you understand what you are signing and agreeing to.

Source: FindLaw.com, "Contract Negotiation and Writing Tips," accessed on Dec. 12, 2014

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