Ever felt a bit lost when faced with a business agreement? You are not alone.
Many Singaporean business owners and entrepreneurs feel a sense of uncertainty when it comes to legal documents. The good news is that understanding how to draft a business contract does not have to be a complicated affair.
Think of it as setting the ground rules for a healthy business relationship, ensuring everyone is on the same page and protected. A well-prepared contract is your first line of defence against future disagreements, saving you time, money, and a whole lot of stress.
Step 1: Start with the Basics
Before you write a single word, make sure your agreement has the fundamental building blocks of a valid contract in Singapore. There must be a clear “offer” from one party and an “acceptance” from the other.
Both sides must provide “consideration“, which is a legal way of saying each party gives something of value, like money for services. Finally, both parties must intend for the agreement to be legally binding, which is usually a given in business dealings.
Step 2: Clearly Identify Everyone Involved
Your contract must state the full legal names and registered addresses of all parties. If you are dealing with a company, use its official name as registered with ACRA (the Accounting and Corporate Regulatory Authority), not just its trading name. This avoids any confusion about who is responsible for upholding the agreement.
Step 3: Define the Scope of Work with Precision
This is where you need to be very specific. What exactly is each person expected to do? Outline all the services, deliverables, and responsibilities. Include key dates and deadlines.
For example, instead of saying “develop a website”, you might detail the number of pages, specific features, and a timeline for the design mock-up, development, and launch. The clearer you are, the less room there is for future arguments.
Step 4: Outline the Payment Terms
Talk about the money. How much is to be paid? Is it a fixed fee or an hourly rate? When are the payments due? Will there be an initial deposit, followed by milestone payments? Specifying the payment schedule and the accepted methods of payment, such as bank transfer, keeps financial matters transparent and professional.
Step 5: Include Clauses for Protection
A good contract prepares you for potential issues down the road. Consider including these important clauses:
- Confidentiality: If you are sharing private business information, this clause legally prevents the other party from sharing it.
- Termination: This section explains how either party can legally end the contract. It might be due to a breach of the agreement or by giving a certain amount of notice.
- Dispute Resolution: Decide in advance how you will handle disagreements. Will you try mediation first before going to Court? Setting this out can make resolving conflicts more structured and less hostile.
Common Mistakes to Avoid When Drafting a Business Contract
A simple oversight can lead to serious headaches down the road. Here are some frequent mistakes Singaporean business owners make and how you can avoid them.
1. Using Vague or Unclear Language
This is perhaps the most common trap. Business relationships often start with a lot of goodwill, so parties might use friendly but imprecise terms. Phrases like “best efforts”, “a reasonable timeframe”, or “a quality product” can mean different things to different people. If a disagreement arises, how do you prove in Court what “reasonable” really meant?
How to avoid it: Be specific. Instead of “payment will be made after the project is finished”, write “payment of the final 50% invoice is due within 14 days of the client’s written approval of the final deliverable”. The clearer your terms, the less room there is for misunderstandings.
2. Relying on a Handshake Deal
In Singapore, we often value relationships and trust, and many deals are discussed and agreed upon verbally. While oral contracts can be legally binding, they are a huge risk. When there is no written record, and memories of the conversation differ, proving the terms of your agreement becomes a messy and expensive “he said, she said” situation, ” he said.
How to avoid it: Always follow up a verbal agreement with a written contract. It does not have to be a 50-page document; even a clear email outlining the key terms that both parties agree to is much better than relying on memory alone.
3. Skipping Over the “Fine Print”
It is easy to focus on the exciting parts of a contract, like the scope of work and the price, and just skim the “standard” clauses at the end. These sections, often called “boilerplate” clauses, cover things like Governing Law, Dispute Resolution, and Notices. They might seem boring, but they are incredibly important. That Governing Law clause, for instance, determines which country’s laws will be used to interpret the contract if a dispute arises.
How to avoid it: Read every single word. Pay attention to these final clauses and understand what they mean for you. If you are not sure, it is a sign that you should seek some advice.
4. Using a Generic Template Without a Review
The internet offers countless contract templates, and while they can be a useful starting point, using one without customisation or a professional review is risky. A template from another country may not comply with Singapore law, and a generic one will not account for the unique details of your specific business deal. You might be leaving your business exposed without even realising it.
How to avoid it: Treat templates as a guide, not a final product. The safest approach is to have a lawyer draft a contract for your specific needs or at least review any template you are considering to ensure it properly protects your interests.
Conclusion About Drafting A Business Contract
Drafting a business contract might seem intimidating, but it is an essential skill for any business owner in Singapore. By making sure your agreements are clear, detailed, and cover all the necessary bases, you are setting your business up for success. Remember, a contract is not about mistrust; it is about creating clarity and security for everyone involved.
If you want to ensure your contracts are solid and your business is protected, it is always wise to seek professional legal advice. For the best corporate lawyer and criminal lawyer in Singapore, look no further than our experienced team at Tembusu Law.
Contact us today for a free consultation.
Frequently Asked Questions About Drafting A Business Contract
What Is The Difference Between A Written And An Oral Contract?
While oral contracts can be legally binding in Singapore, they are much harder to prove in Court. A written contract provides a clear record of the terms and obligations of each party, which can be easily referred to in case of a dispute.
Can I Use A Template I Found Online?
Online templates can be a starting point, but they are often generic and may not be tailored to your specific needs or comply with Singaporean law. It is always better to have a contract drafted or reviewed by a qualified lawyer.
What Happens If A Contract Is Breached?
If one party fails to fulfil their obligations under the contract, the other party may have several remedies. These can include claiming financial compensation for losses, seeking an order from the Court to force the other party to perform their obligations, or terminating the contract.
Do I Need A Lawyer To Draft A Contract?
While it is not a legal requirement, it is highly recommended. A lawyer can help you identify potential risks, ensure your interests are protected, and draft a contract that is legally enforceable in Singapore.
How Do I Make Sure The Person Signing For A Company Has Authority?
You should ask for evidence of their authority to sign on behalf of the company. This could be a company resolution or a letter of authorisation. It is important to ensure you are dealing with someone who can legally bind the company to the agreement.
