A company typically will be ready to enter into its first contract shortly after formation.

Trust and a simple handshake may be tempting initially, especially with friends or past associates; and skipping a written agreement to save time and money may be enticing when cash is tight.

Oral contracts might suffice in limited circumstances, however, in most cases a company should have at least a simple written agreement in place to reduce both ambiguity and the potential for disputes. In addition, certain kinds of contracts must be in writing.

Whether a written contract is required depends on the monetary value involved. Generally, contracts for the sale of goods totaling US$500 or more must be in writing. Similarly, contracts pertaining to leases of goods with payments totaling US$1,000 or more must also be in writing.

When entering into a written contract, ensuring all the agreed terms are written in the contract is vital, as it may not be possible to establish the existence of oral terms agreed upon by the parties. Reviewing written terms also helps both parties ensure they agree on the terms involved, as these written terms will also govern most disputes.

 The following are a few examples of key provisions you should include in a written contract:

introductory language providing the name/contact information of all parties to the agreement and the date on which the agreement is entered into

a provision setting forth the time frame in which the contract will be in effect (note that if the desired length of a contract is uncertain,  a term can be added to automatically renew for additional periods if neither party terminates)

a provision detailing the price and how/when payments will be made

a provision detailing when a vendor must deliver goods or a provider must complete a task 

a provision detailing how parties can amend or waive part of the agreement (e.g. whether notice or consent is required)

a provision specifying which state’s laws will apply in a dispute. Ideally a company wants the state in which the company is located (to save potential litigation costs) or a state with which both parties are comfortable

a provision specifying that the terms of the written agreement constitute the entire agreement and trump any previous oral or written agreement (unless otherwise specified)  

For basic contracts, many startups choose to prepare the written agreement on their own to save costs. The key provisions above can help outline such contracts. However, legal advisors can easily review written agreements that the company has either prepared or received from another party, to ensure there are no glaring omissions.

Back to All Resources