How to Write a Contract

Contracts are the backbone of practically every personal and business transaction, from employment agreements and car leases to subscription services. While you don’t necessarily need to be a lawyer to write a basic contractual agreement, it’s crucial to proceed with caution, as a small misstep can lead to unintended consequences. 

Contractual agreements can vary in their specifics and core sections, but most contracts share a few common elements. Here’s how to start drafting yours:

Step 1: Outline the basics

The first step in creating a legally binding agreement is to outline the essential information for the contract and parties involved, such as: 

• Purpose. Briefly describe the overall objective of the contract (e.g., bill of sale, nondisclosure agreement, or the applicable term describing the nature of the agreement). 
• Identification. Clearly state the full legal names of two or more parties or entities bound by the agreement. 
• Start and end dates. Specify when the contract goes into effect and, if applicable, when it will terminate. 
• Contact information. Include relevant contact methods for all parties, such as mailing addresses, phone numbers, and email addresses. 

In most cases, you’ll state the purpose of the contract and identify the parties upfront, whereas the other information might be mentioned towards the middle or end. Still, there’s no single standard format for drafting contracts (except for situations like government contracting), so what’s important is that all of it makes its way into the final agreement. 

Step 2: Define the key terms and scope of work

Next, you’ll write the contract terms (i.e., what’s being agreed upon) and provide definitions for any specialized phrases. Here’s what this step involves. 

Scope of work: Include a detailed description of the products, services, or actions covered by the legal agreement. Be as specific as possible about: 

• Deliverables. What exactly will the other party provide or produce? 
• Timelines. When will they complete each part of the work or action? 
• Quality standards. What level of quality do you expect? 
• Quantity. How much of a product or service will the other party provide? 

Key terms: Definitions of any industry-specific or technical terms used in the contract. For instance, in a software development employment agreement, define terms like “API” or “source code.” Conversely, if you’re writing an NDA, clearly define what’s considered confidential information. 

Exclusions: If relevant, specify what isn’t included in the scope of work to avoid confusion or false expectations later on. 

Step 3: Set payment terms

If your contract doesn’t include payment terms (such as for an NDA), then you can skip to the next step. On the other hand, if you expect to receive or send money, then you’ll want to specify how, when, and what payment(s) will be made, including these elements: 

• Expected amount. The total cost of the goods or services provided. If the price may vary, clearly explain the fee structure (e.g., an hourly rate or based on the quantity delivered). 
• Payment schedule. When payments are due, whether upon completion, at specific milestones, or on a recurring basis 
• Payment method. Acceptable forms of payment, such as via bank transfer or check. 
• Expenses and taxes. Which party is responsible for related expenses (e.g., traveling, equipment purchases, and even tax payments) 

Additionally, it’s a good idea to mention the consequences (if any) for late payments, such as applicable interest charges, suspension of services, or a full termination of the contract after a specified period. 

Step 4: Include protective clauses

A protective contract clause sets boundaries for various situations that might arise during the course of the agreement. Depending on the purpose of your agreement, you might want to include certain protective clauses, such as: 

• Indemnification. Outlines how one party will compensate the other for potential losses or damages. 
• Confidentiality. Specifies how confidential information should be handled (similar to an NDA). 
• Limitation of liability. Caps the amount of damages a party can be held responsible for, including any types of excluded damages. 
• Dispute resolution. Specifies the process for resolving disagreements, such as mediation requirements before litigation. 
• Termination conditions. Clearly defines under which circumstances the contract can be ended. 
• Force majeure. Addresses unforeseeable circumstances (e.g., natural disasters or global pandemics) that prevent parties from meeting their obligations. 

You aren’t required to include protective clauses in your contract, but they can certainly make the agreement more robust by providing guidelines for how to handle potential issues. 

Step 5: Negotiate

Once you’ve drafted the initial contract, you can share it with the other party and give them time to review it. You might even specify a window for when you expect a response (e.g., five business days) before the agreement or offer will expire. 

During this phase, each party should review the contract and pay close attention to the outlined responsibilities, expectations, and clauses. Try to keep an open and honest line of communication, and be prepared for any questions, concerns, or suggestions. 

While some parts might be nonnegotiable, remember that an agreement is about finding common ground that satisfies everyone. Ultimately, you want to ensure that all parties are comfortable with the terms before making it official, so it may be necessary to revise the contract again and go through additional rounds of review. 

Step 6: Get a contract review

After reaching a tentative agreement with the other party, it’s highly recommended to at least have a lawyer review the contract before finalizing it. 

This may seem unnecessary, especially for smaller agreements, but hiring a lawyer familiar with contract law can protect your interests. Most importantly, they can identify potential legal issues, ambiguities, or loopholes that could lead to disputes later on. Likewise, they can confirm you included all necessary clauses and that your contract complies with relevant laws and regulations. 

While you can write a contract without a lawyer, the potential costs of errors or omissions can easily exceed the price of a professional contract review. Still, even if you don’t hire a lawyer, you want to make every effort to address potential issues before signing rather than after the fact. 

Step 7: Sign and date

Now that you’ve completed all the complex parts, the final step is relatively simple: sign on the dotted line and date the document, along with all other parties. If your contract involves another business, you’ll also want to ensure that the person signing has the authority to enter the agreement on behalf of the company. 

Otherwise, the contract becomes legally binding once all signatures and dates are recorded. You should provide each party with a copy of the completed agreement, and remember that any changes will typically require a new contract or an amendment that all parties must sign again. 

Do’s and don’ts of writing a contract

Now that you’ve learned the basics of contract writing, review these helpful tips to understand what you should and shouldn’t do when you write yours: 

Do’s

• Start with a clear outline. Before getting to the details, make a structured outline that captures the key elements of a valid contract. 
• Use easy-to-understand and consistent terminology. Unless absolutely necessary, avoid using advanced legal or technical terms. Instead, try to use straightforward and consistent language that all parties can easily reference and comprehend. 
• Set realistic terms and expectations. Overpromising or setting unrealistic expectations sets you and the other parties up for failure, so be realistic about timelines, quality standards, and deliverables. 
• Keep the format simple. Contracts need to be comprehensive, but they shouldn’t be more complex than they need to be. Prioritize short paragraphs, bullet points, and numbered sections to improve readability. 
• Consider future scenarios. Think ahead and include clauses that address potential changes or developments, such as provisions for amendments, dispute resolution, or how to handle unforeseen circumstances (i.e., force majeure). 
• Try a reputable contract template. Nothing says you need to create your own contract from scratch. In fact, starting with a well-crafted template can save time and help you include the basic (but not necessarily all) elements.  

Don’ts

• Don’t overload the contract. While it’s important to be thorough, avoid the urge to include every possible scenario or clause, as an overly lengthy contract can be intimidating and discourage parties from reading it carefully. 
• Don’t make the contract one-sided. Ensure the agreement is fair and works for all parties involved. A contract that heavily favors your interests is less likely to be signed by others and can damage professional relationships. 
• Don’t include unenforceable clauses. Avoid including provisions that may not hold up in court and ensure the other party has the legal capacity to agree to it. You’ll need to research relevant laws in your area or consult a lawyer to ensure all clauses are legally sound. 
• Don’t leave room for ambiguity. What seems clear to you might not be understood by others, so be specific about expectations, deliverables, and consequences, even if you’ve already established them verbally. 
• Don’t mindlessly follow a contract template. Templates can be useful starting points as discussed, but you still need to adjust the contract to fit your situation, so only use one if you can customize it.

Contract examples

Finally, let’s look at some real-world contract examples to help you understand what you might need to include in your agreement. Make sure to reference the links to the contract templates to follow each example. 

First, let’s say you're a small business owner and want to hire a graphic designer to overhaul your brand. In this case, you’d want to create an independent contractor agreement and include the following elements:

• The scope of work (e.g., new logo, color palette, and font)
• Project timeline 
• Payment terms
• Ownership rights for the final designs 
• The process for revisions and requesting changes 

As another example, imagine you own construction equipment and meet a home builder who wants to lease a few vehicles. This would call for an equipment lease agreement that contains these clauses: 

• The lease duration
• Monthly rent amount and security deposit
• Permitted use of the vehicles
• Responsibilities for maintenance and repairs 
• Terms for renewal, termination, and any restrictions on usage

You can also browse our entire catalog of free templates to find one that matches your needs. Alternatively, we can partner you with an attorney who can review or revise business contracts—all for a flat and predictable price.

Why contractual agreements are so necessary

Contractual agreements turn verbal discussions into written, legally enforceable terms that all parties must follow. From a broad perspective, a legally binding contract outlines each party’s rights, responsibilities, expectations, and the basis for resolution or legal action in the event of a breach. 

Common types of contracts you may need or come across include the following: 

• Employment contracts when you start a new job or hire workers for your business 
• Independent contractor agreements if you’re a freelancer or paying contractors for specific work 
• Nondisclosure agreements (NDAs) if you need to protect confidential information 
• Lease agreements for real estate, vehicle, or equipment leases 
• Bills of sale to keep accurate records of a purchase or sale 
• Licensing agreements when you use intellectual property or allow another party to use yours

Without a legal contract, however, it’s difficult to enforce the agreed-upon terms since there’s no point of reference besides each party’s verbal testimony. While a contract doesn’t guarantee everyone follows through with their obligations, it mitigates risk and helps prevent misunderstandings, not to mention costly legal disputes. 

FAQs

Can I write my own contract?

Yes, you can write your own contract. However, including all necessary elements is crucial to make it legally binding. For complex situations or high-stakes agreements, it’s advisable to consult a contract attorney to review or draft your agreement. 

Is there a format for contracts?

There’s no single or mandatory format for writing contracts, but they typically follow a standard structure. This includes identifying the parties, outlining the agreement’s terms, specifying obligations and rights, and including signatures. 

What should I do if I don’t understand the terms of a contract?

If you come across unfamiliar or confusing terms, you’ll want to clarify them before signing. You can ask the other party for explanations, speak to a lawyer, or research the terms independently. Regardless, you should wait to sign until you fully understand the agreement’s implications. 

Can a contract be amended after it’s signed?

Yes, many finalized contracts can be amended if all parties agree. This is typically done by creating a new amendment outlining the changes and asking all parties to sign the updated agreement.