Whatever your business, you'll need to write contracts from time to time. You'll probably need a written contract if you want to:

• buy or sell goods
• perform services as an independent contractor or consultant
• lease real estate or equipment
• manufacture, distribute or license products
• enter into joint ventures
• grant credit
• advertise.

Checklist of Contract Clauses

The content of a contract depends, of course, on the type of transaction you're getting into. This checklist includes items to consider when you draft a contract:

• Names and addresses of the parties.

• Date that the contract is signed.

• A short preamble ("recitals"). This provides some of the background of the agreement. For example, a contract might recite that Discs Unlimited is a retailer of compact discs and has three stores in the metropolitan area; that Stewart has an inventory management business; and that Discs Unlimited wishes to retain Stewart as an independent contractor to establish and maintain the company's computerized inventory control system.

• What each party is promising to do: Pay money, provide a service, sell something, build something or so on. Often this section of the contract - particularly if it involves a product or a construction project- is labeled "specifications." In many situations, such as designing software, constructing a building or providing consulting services, the specifications require an attachment that can run on for pages and may include drawings, formulas or charts.

• When the work will be done or the product delivered. If strict compliance with contract deadlines is important, be sure to include the words, "Time is of the essence." Otherwise, a judge would probably allow reasonable leeway in enforcing the deadlines.

• How long the contract will remain in effect.

• The price - or how it will be determined.

• When payment is due. Will there be installments, and will interest be charged? In contracts for consulting and other services, it's common to have a payment schedule tied to interim completion deadlines. For example, a contract for architectural services might provide for payment of one-third of the architect's fees when drawings and specifications are finished and approved; one-third after bids have been received on the construction project and a contract signed with the general contractor; and one-third when the project is completed and a certificate of occupancy is issued by the building department.

• Warranties. If one party guarantees labor and materials for a certain period of time, what steps will be taken to correct warranty problems?

• Conditions under which either party can terminate the agreement.

• "Liquidated damages" if performance is delayed or defective. In cases where actual damages for breach of contract would be difficult to compute, the parties can establish in advance a fixed dollar amount (called liquidated damages) to be paid by a party who fails to perform its contractual obligations properly.

• Whether or not either party can transfer (assign) the contract to another person or company. A contract that allows assignment of contract rights may be okay if it involves just the right to receive money, but not if it means that some other, unknown party will wind up performing skilled services called for by the contract.

• Arbitration or mediation of disputes.

• Whether or not a party who breaches the contract is responsible for the other party's attorney fees and legal costs.

• Where notices of default or other communications concerning the contract can be sent. Typically, the notices are sent to the business headquarters of the contracting parties.

• What state law applies if questions about the contract arise. If the parties have operations in different states or the contract is to be performed in more than one state, you may avoid potentially knotty legal issues if you specify in advance which state law applies.

Excerpted from the "Legal Guide for Starting and Running a Small Business" by Fred S. Steingold
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