Secrets of Effective Contracts: How to Maximize Protection and Reduce Risk

A correctly drawn up contract is a key element of a successful business. It defines the obligations of the parties and protects the interests of each of them. In this article, we will review the basic principles of creating effective contracts and share with you a few secrets that will help you minimize risk and maximize protection.

An effective contract is a legal document that is formulated in such a way as to protect the interests of each party as much as possible and to minimize possible risks and conflicts.

1. Understanding goals and interests:

Before starting to write a contract, it is necessary to clearly define the goals and interests of each of the parties. This will avoid misunderstandings and conflicts in the future. When concluding a contract, pay special attention to defining the rights and obligations of each party, as well as the conditions for terminating or changing the contract. There are ambiguous situations that only qualified lawyers and accountants will be able to understand.

Case : You work as an FOP of the 2nd group (store, online school, etc.) and some of your acquaintances (individuals) attract customers to you. You want to actually pay them a commission, not just that. It should be taken into account that: EITHER each agent needs to pay the minimum ECV OR they must be FOPs, because commercial mediation is only a business activity, so each agent must pay the minimum ECV for himself (this is the more correct option). Therefore, it is advisable to sign an agency agreement only when you have understood the situation in essence and will not have to redo everything.

2. Clarity and unambiguity:

The contract must be formulated clearly and unambiguously to avoid ambiguity and misunderstanding. Use simple and clear language, avoid complex legal terms if possible. Each article of the contract must be structured and logically connected with previous and subsequent clauses.

Case : Sometimes the parties to the contract are in a fairly trusting relationship and the contract does not clearly specify the order of payments: it will be prepayment, partial payment or postpayment. If this is not stated in the contract, then as a general rule, the applicable law should be followed, which generally states that if the services or goods have been transferred, then payment must be made on demand by the seller. However, if we are talking about a foreign economic contract in the Ukrainian legal field, then bank employees will simply never understand what is required there according to the applicable legislation, and there will be fewer questions from currency control if you clearly write down the order of payments in the contract. Of course, it is not forbidden to leave maximum flexibility in the contract, but already in the specifications or annexes to it, clearly indicate: the goods/services are transferred only after payment or the payment is made after the transfer of the goods. Simply on the basis of an offer invoice, small amounts may be paid that do not fall under the financial control limit, i.e. up to 400,000 hryvnias, but it should be remembered that even for a smaller transaction amount, the bank has the right to ask you to provide supporting documents.

3. Detailed description of obligations:

The more detailed the obligations of the parties are described in the contract, the lower the likelihood of misunderstandings and disputes in the future. Include in the contract specific terms, conditions for performance of work or provision of services, as well as fines for violation of terms or non-fulfillment of obligations.

Case : At the beginning of cooperation, the customer and the executor do not always clearly present the result of the work or services, so at one time it can be described quite abstractly, for example, to provide software development services according to the customer's requirements. However, such wording does not protect either party. None of the parties will be able to prove that the volume of ordered services was or was not provided, not to mention the quality. In this case, it is recommended to attach the technical task to the software development contract , a list of works as a schedule, an appendix to the contract, etc.

4. Indication of dispute resolution mechanisms:

Be sure to include dispute resolution mechanisms in the contract, such as arbitration, mediation, or litigation. This will help to avoid long and expensive court proceedings in case of conflicts between the parties.

Recommendation: Due to globalization, there is increasingly a foreign element in commercial relations between the parties, which gives grounds for applying substantive law to the choice of the parties. Therefore, the parties can determine: to apply to the general court at the place of applicable jurisdiction, which can also be defined in the contract, or to arbitration. Litigation in courts of general jurisdiction may be cheaper, but much longer, than in arbitration. Opting for expensive arbitration with expensive lawyers basically deprives the party of the right to seek legal protection because they are unable to pay the court fee. However, with large amounts of transactions, it is recommended to use reliable means of legal protection, i.e. arbitration (an example of an arbitration clause ).

5. Preservation of original documents, verification of eradication and control:

After the contract is signed, do not forget to regularly check its terms and monitor the fulfillment of obligations by the parties. If there are any changes in conditions or circumstances, it is necessary to immediately take measures to correct them and update the contract.

When the parties concluded an agreement, contracts were signed, the goods went, services were discovered, dopamine was released, but the agreement does not end there, care must be taken to preserve the originals of agreements, acts and correspondence between the parties until the agreement and settlements are fully closed, the warranty period for product It may seem boring, or there may be a division of responsibility between departments where the manager thinks that the lawyers keep these documents or the lawyers think that it is the manager's responsibility. It is the responsibility of the owner, the CEO to make sure that at least someone is doing it and taking responsibility. Currently, many contracts are signed exclusively online, for this there must be a clause in the contract that it is only in PDF format ( contract clause ). At the same time, it is very important that documents are sent from the official mail of one enterprise to the official mail of the responsible person of another enterprise. At the same time, archiving mail, removing bulky letters from postal services in order to save space can cause more harm than good. If the documents are sent via messengers, then a backup copy is definitely needed, so that in case the phone is wiped, the responsible person can make sure that the document was received from the responsible person of the counterparty. Therefore, for this, it is better to use reliable mail services, set up backups, backup e-mail addresses for recovery, as well as use specialized electronic document management platforms.

Finally, I would like to emphasize that concluding an effective contract is an important stage of any business. By following the above secrets, you will be able to minimize your risks and protect your interests, which will ultimately lead to the success of your venture.