A Guide to Drafting Contracts for Small Business Owners

abogado comercial en Panamá : Commercial Lawyer in Panama

If you’re a small business owner, you’ll likely have to read and draft numerous contracts with different entities: employees, partners, suppliers, and customers. In my experience as a commercial lawyer in Panama for various companies, I have found that certain aspects about this subject are similar.

The purpose of this guide is to provide you with valuable and practical ideas on this important topic. It’s no exaggeration to say that mastering the art of drafting effective contracts can help protect your interests and foster healthy business relationships.

Keep in mind that drafting and managing contracts is a complex task that has a significant impact on the success of your business.

What is a contract?

According to the Diccionario Panhispánico del Español Jurídico de la Real Academia Española, a contract is:

1.  A contract is a legal act by which two or more parties express their consent to create, regulate, modify, transfer, or extinguish property legal relationships.

2. “A document that includes the conditions of this pact or agreement.

In addition, the contracts grant each party certain rights and require them to comply with specific obligations and its breach may have legal, economic, and social consequences.

Basic elements

Any contracts must contain some elements expressed clearly and concisely, as follows:

  • Offer: contains the offer of one party
  • Acceptance: contains the acceptance of the offer
  • Consideration: Compensation or payment that one party provides to another in exchange for goods or services. Something of value that is exchanged between two parties in a contract.
  • Lawful purpose: The purpose of the contract must comply with the law and public policy.
  • Competent parties: The contract must clearly state the mutual consent. Both parties must be competent and have a mutual understanding of their rights and duties under the contract

In addition, any contract drafting must be in direct and concise language that describes the agreement accurately. 

How to draft a contract?

Drafting a contract is an important skill to have. Depending on the complexity and purpose of the contract your commercial lawyer might suggest additional elements. However, these are the essential elements you should include:

  1. Identification of the parties: Using their legal data, correctly identify the parties included in the agreement. It can be the company’s name or the people involved.
  2. Scope of the agreement: Define clearly the responsibilities of each party, the associated products or services, and the schedule of obligations.
  3. Payment terms: Indicate the consideration to which each party is entitled. These terms outline how and when to make the payments.
  4. Cancellation clause: Specify the conditions and procedures to rescind the contract if any parties decide to do so. It also outlines the penalties or fees caused by rescinding the contract.
  5. Dispute resolution clause: Sets out how the parties will resolve disputes. It provides a neutral set of agreed-upon guidelines to help maintain a good business relationship and minimize the time and money spent working out issues. In case of disagreements, define how to solve them. It may be through arbitration, mediation, or court proceedings and the jurisdiction.

Some contracts may include a confidentiality clause or a Force Majeure Clause. A confidentiality clause is highly recommended if trade secrets or other confidential information is involved in your contract. A Force Majeure Clause allows a party to leave a contract temporarily or permanently, in whole or in part, for catastrophes that were not foreseeable. A Force Majeure Clause allows a party to leave a contract temporarily or permanently, in whole or in part, for catastrophes that were not foreseeable. 

You should always draft and review contracts with a professional.

Drafting effective contracts is critical to a company’s success. It contributes to business growth and also helps to avoid future complications. Developing well-drafted contracts can safeguard your business interests and foster healthy business relationships.

In Panama and anywhere else,  a business lawyer will advise you to only sign a contract after thoroughly reviewing its terms with a professional.

Before signing the contract, a legal advisor can ensure that your contract meets your needs and protects your rights. Think of contracts as the foundation that gives strength to your company. If the construction is hasty and takes shortcuts, it may not withstand a storm; it is better to rely on a master builder to ensure you have the strength you need.


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