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China Contract Attorney: Essentials on the Making of a Business Contract: The Legal Ties that Bind

The main goal of this law blog is to assist foreigners to do business and solve other issues in China. More than 90 per cent foreigners come to china for business, so it's essential for foreigners to know how to conclude a contract in China. Especially for those owners of a small business, you will probably need to create business contracts as your company grows.

What is a Business Contract?

A business contract is a legally binding agreement between two parties for an exchange of services that are of value. For a contract to be valid, an offer must be made and accepted. Using a contract in business dealings helps ensure an agreement is acted on, insofar as a broken contract could result in a lawsuit or out-of-court settlement and the payment of damages caused by the breach. The best way to avoid a dispute or potential litigation, however, is to craft a solid agreement in which you’re confident you’ve negotiated the best terms for your business.

We have outlined basic business contract information for your small business; consult an attorney for legal advice.

When to Use Business Contracts

A business contract is often used for: 

l          Hiring or being employed as an independent contractor

l          Buying or providing services or goods

l          Leases and real estate

l          Selling your business

l          Partnerships and joint ventures

l          Franchising

l          Confidentiality agreements

l         Non-compete agreements

A contract often involves paying for services, but non-monetary contracts are just as valid.

Oral Business Contracts

An oral contract is a spoken agreement that is as valid as a written contract. For example, if you have a promise that a job will be complete for monetary or other compensation, you have created an oral contract.

Oral contracts are legally enforceable, although they are frequently subject to misinterpretation and they can be difficult to prove in court because they often come down to one person's word against the other. Moreover, some types of contracts must be in writing, for example, contracts for the purchase or sale of any interest in real property.

Written Business Contracts

Written contracts are produced on paper or electronically. Legally, a written business contract is easier to uphold than an oral contract because there is a reference for the agreement.

With a written contract, it's "easier to prove … the terms between the parties and eliminate arguments over who said what," says Jack Cummins of Chicago-based Cummins & Associates, which represents small businesses. He adds that it's often easier for businesses to recognize potential points of contention in the language because the agreement is detailed in writing.

Whether your small business is providing or offering services, you should consider using a written business contract and including specific details about the agreement.

Business Contract Items

As your legal counsel experienced in drafting agrement, I have assist many clients drawn up agreement in English. Typically, I will consider the following points when drafting an English contract. A business contract should be labeled "contract" or "agreement" at the top. These are some items it can include:

l          Date of contract

l          Names of parties involved

l          Details of services that your company will provide or receive

l          Payment amounts

l          Payment due dates.Note that payments do not need to be made in a lump sum at the end of the project. You can make or receive incremental payments for specific services rendered once they are completed.

l          Interest on late payments

l          Deadlines for services due. This is also called a "time is of the essence" clause. You will probably want to use this phrase in your contract if you have a timeline for a project.

l          Expiration dates for the contract, such as a lease expiry

l          Renewal terms, if applicable

l          Damages for breach of contract. Also called "liquidated damages," this clause can specify amounts to be paid if services are incomplete or deadlines are missed. A court can also award damages if a contract is breached, even if damages and amounts were not included in the agreement.

l          Termination conditions

l          Signatures


 E-Contracts and Signatures

Electronic contracts and signatures are valid under the Electronic Signatures in Global and International Commerce Act, which was signed into law in 2000.

There is e-contract software that provides an "I agree" check box, or you can send and receive written contracts online and have the parties sign electronically. If you make an agreement over e-mail by simply writing "sounds good," there could be a question as to whether the agreement is legally binding, Cummins says.

While e-contracts and e-signatures are valid, many businesses prefer to have written signatures on contracts because e-signatures can be subject to legal challenge, he adds.

Business Contract Tips

Here are some hints to make your contract as clear, concise and thorough as possible:

Be Specific

Contracts don't require legal jargon. The best contracts are clear, specific and focused, with wording that is simple and concise to avoid any confusion. For example, if you're planning an event and you need 150 tables delivered by a certain date, you may want to specify not only the date but the time of delivery.

It's better to specify the hour rather than using a more general time frame, such as "in the morning." That way, all parties are clear on what is to be done and by when.

"By forcing the parties to get more specific at the beginning of the relationship, it helps avoid arguments later on," Cummins says.

Clarify Questions

Never assume that the party you're doing business with knows your conditions. Always make your requirements clear. If you're not drafting the contract, outline your conditions for your business before you begin negotiating.

Know the Laws

State and local regulations as well as federal laws may be relevant to your contract. Be sure to check the codes and regulations that apply to your agreement to ensure that your contract complies with the law. For example, if you are leasing a property your city may have rental codes that you'll need to follow. Research laws online, check with your local chamber of commerce and consider consulting a lawyer.

Read the Fine Print

Review all contracts thoroughly so that you understand the agreement. "I assumed" or "I didn't know" arguments may not hold up in court, particularly if the points in question are clarified in a written agreement.

Negotiate and Consult an Attorney

Negotiating is a crucial skill for getting what you want out of a contract. Know the points you are willing to be flexible on in a contract before you begin negotiations. Cummins says that small businesses often make the mistake of consulting their lawyers only after they've signed the agreement and have problems with it.

"Get your lawyer's advice before you sign contracts," he advises. "Over the course of the business, this practice will save you many headaches and significant legal fees."

As an experienced lawyer practising in China, I have drafted numerous contracts for my clients. The contract, usually referred to as agreement in China, is crutial for foreigners to do business in China, considering that some Chinese businessmen are less creditable. I am not defaming my Chinese fellow, but you will find it true on the long run.

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I am a licensed China lawyer. Most clients are foreign nationals and companies. China Lawyer Blog have associates in Beijing, Shanghai, Tianjin, Guangzhou, Suzhou, Nanjing, Qingdao, Fuzhou, Hainan, Hefei, Wuhan, Xian, Changsha, Xiamen and Hangzhou. Learn More

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China Lawyer BLog AuthorPeter Zhu, an experienced China attorney licensed to practice law for more than ten years, the author of this China Lawyer blog, welcomes any enquiry or consultation related to Chinese law.