Drafting a Contract Without a Legal Background - Is That Possible and Allowed?

At some point in school, we all learned once that a contract is the agreement of several declarations of intent - written or oral. In everyday life, we constantly enter into contracts, even if we only pay for our purchases at the supermarket checkout.

Companies keep setting up contracts, start-ups as well as grown-ups. But is it as uncomplicated in everyday business as it is on a private level? Or can only certain people set up legally binding contracts? What differences are there between the different types of contracts? Do the same rules apply to internal and external contracts? We'll show you what you should pay attention to in contracts and how to best proceed when creating a contract.

What is a contract?

The theory: A contract is a legal transaction with at least two matching declarations of intent between natural or legal persons. Contracts according to §§ 145 ff. BGB (civil code) are created by offer and acceptance of the offer. They occur in private law, public law and international law.

The practice: There is always an offer and an acceptance in your everyday business. One party expresses its will, for example by making a sales offer. All conditions are discussed in detail. These can be prices, delivery conditions and payment conditions. The second party must agree to the details of the offer, i.e. also make its declaration of intent. The contract becomes effective with the acceptance of the offer (order confirmation).

What is contract management?

Written contracts are enormously important in everyday business and are constantly needed: in the human resources department and for agreements with customers as well as suppliers and other business partners. As you can probably imagine, a lot of documents come together. Without structured contract management, you can quickly lose track. This can have fatal consequences for your company, because contracts can expire, (cancellation) deadlines can expire and penalty payments can be incurred due to non-compliance with the contractual content. The consequences of breach of contract can cost companies their existence in the worst case.

What types of contracts are there?

Company-internal contracts

Internal contracts are e.g. Employment contracts with employees or also the very first contract: the articles of association. Company-internal are all contracts that you do not conclude with external, but with internal contract partners.

The employment contract regulates, among other things, working hours, conditions, remuneration and other company benefits. To be on the safe side in terms of labor law, you as employers should always keep an eye on your rights and obligations as well as those of your employees. A web-based software solution can help you with this. With a Contract management software like e.g. ContractHero Vertragsmanagement

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Company-external contracts

External contracts are e.g. Contracts between your company and your customers or suppliers. Company-external are all contracts that you conclude with external contract partners.

The number of contract partners can quickly increase. This is hardly manageable without technical support. If you overlook something here, you can unintentionally breach the contract. This usually does not only end with high costs, but also the trust of external contract partners is squandered. With a contract management software, contract conditions can be mapped and the complete contract life can be followed.

Internal and external contracts: Where is the difference?

There are no blanket differences between internal and external contracts. Both can be very complex. They usually include regulations on the contract term, powers, responsibilities and more. Your procedure when drawing up an internal or external contract is basically the same.

How do you draw up a contract?

You are wondering whether you can just start typing in Word or should you commission the creation of a contract from lawyers? A little mindfulness is required with this topic. Spoiler alert: There are good middle ways, somewhere between Word and expensive lawyers, that you can use to create legally compliant contracts.

The fact is, anyone who is presented with an obviously unprofessionally drawn up contract questions the seriousness of his counterpart. Therefore, not only the content, but also the appearance and error-free nature play a crucial role when drawing up a contract.

The basis of professional and legally compliant contracts: This is how you set up contracts.

Step 1: Structure and structure

The motto is" simple and professional ". Build your contract in a simple and understandable way. Make sure not to get lost in too many levels - make it as easy as possible for your readers to understand legal texts. This enables your contract partners to quickly check and sign the contract.

Step 2: Headlines

Contracts contain several clauses. Use appropriate headlines for the individual paragraphs. They immediately tell your contract partners what information they will find in which paragraph of the contract.

Step 3: Format and design

Of course you should not choose a typeface like Mistral - you were sure to have thought that. Meaningful paragraphs should not be neglected. Absolutely every one of your formatting decisions should have the same goal: good readability. Choose a clean design that matches your corporate identity. We especially recommend you not to change your design weekly and in no case to change the format within a document. Keep it simple and uniform. This increases your recognition value and simplifies contract drafting.

With contract management tools, you ensure a legible, customized and uniform design for all your contracts.

Step 4: Media

A contract has to be complicated and dry? No, it doesn't! Graphics like flowcharts can help you clearly display complex processes and hierarchies. So use media whenever they help understanding.

Step 5: Complex clauses

Always put yourself in your counterpart. These do not necessarily have to be legal experts. If complex clauses are built into your contracts, then you should go into more detail. Explain these in the simplest words you can find.

Some contract creators refer to legal texts or use abbreviations. It's well meant, but that's exactly what can delay the conclusion of the contract. If your contract partners cannot understand or understand passages of text in your contracts directly, they put them aside or give them to a specialist department for examination. That takes time.

There are contract management software that enable more than commenting functions to explain potentially unknown terminology and clauses. For example, video explanations can be added.

Content of a contract - How can you set up a purchase contract?

Source: freightos.com

In principle, it is possible to set up a purchase contract yourself. However, you should be aware that an incorrect or incomplete purchase contract has legal consequences. It is therefore advisable to do so with the help of legal support or specially developed software.

What needs to be included when setting up a contract?

Mandatory and optional components

Purchase contracts must at least include the item to be purchased, the price as well as the buyer and seller.

You can write a contract without defining every detail right away. It is sufficient if the payment and delivery conditions are negotiated separately at a later date.

International contracts

Incoterms are recommended in international business because they speak a uniform language across national borders. Incoterms are internationally valid and regulate the cost distribution, risk distribution and diligence obligations between the contract partners.

Further documents

A contract usually generates a whole range of documents, such as bills of lading, delivery notes and invoices, which must be processed and stored in accordance with the law. Therefore, a document management system can prove to be particularly useful.Data protection and contract management Sensitive information in the contract must be kept in compliance with data protection at all times. When setting up a contract, you also need to consider many other things. An ISO 27001-certified software solution ensures that you comply with legal regulations. There is e.g. End-to-end encryption, access via two-factor authentication and hosting on German servers.

If your company has a lot of work with data protection matters, it may be worthwhile to delegate the examination effort to a responsible person and to get advice from the professionals at Privacy Tech.

How to set up a contract in 7 steps: What should it contain and how should you proceed?

1. Name the parties to the contract correctlyFirst you have to name the parties correctly. Make sure you give the correct company names and legal forms. The liability conditions for a GmbH, for example, differ from those of a stock corporation.Do not translate legal forms in international contracts. Although GmbH is often translated as " Ltd ", this is incorrect. There are major differences between the American and British translations that should also be taken into account: the German legal form of a limited liability company with an explanation in brackets behind the company name ( German private limited company - Ltd. ( UK ) or German limited liability company – Llc. (. US) ) could be possible. This makes a big difference in legal terms.

2. Create a contract introduction (preamble)

The contract introduction is important in the event of disputes and should therefore not be neglected. In this introduction you should explain the history and the reasons for the agreement. Important information about business relationships and the intentions of the parties should not be missing. If there are disputes about the interpretation of various components of the contract, this information is relevant.

3. Use understandable terms and add definitions if necessary

If you use ( technical ) terms in your contracts, you should add a clear definition for them. Define the terms clearly so that any potential for discussion is excluded.

 
Every party needs to know exactly what z. B. is to be understood by the " Responsible in connection with the processing of personal data and data protection". You could also directly adopt the definition of the term from the EU regulation on data protection. It would then read something like this: "The person responsible is the natural or legal person, authority, facility or other body that decides alone or in common with others about the purposes and means of processing personal data."

A flawless definition leaves absolutely no room for misunderstandings. This is how you can avoid misinterpretations.

4. Determine performance and consideration

The performance and consideration are the main components of every contract. You should clearly state which rights and obligations the parties have. Who has to provide services when and what the ( natural or legal ) person gets in return.

5. Specify the consequences in the event of breach of contract

Another mandatory part of the contract is the consequences in the event of a breach of contract. Both parties have certain rights and obligations. So you should determine what consequences a failure to meet the agreed obligations would have. This is your safety net: Only in this way can you assert your rights.

6. Add the final provisions

The final provisions come at the end of the contract. These are usually clauses on the place of jurisdiction or any future changes to the contract. In international contracts, it should be stipulated in which country a possible arbitration procedure would take place should there be disputes. As a rule, this is one of the countries in which the companies are registered.

7. Date and signature

The date and signature are not to be underestimated. The date determines the point in time at which all rights and obligations arise and the contract takes effect. It may be that a different start date is set for the services and counter-services, but the obligations are valid earlier. If you forget the date, this can have significant legal consequences later. If you don't have your contract partner's signature, you don't have any claims.

What does a contract look like exactly?

Source: freightos.com

Contract can look very different: orally, in writing or through a reaction or no reaction. For example, a contract can come about if recipients keep the goods even though they didn't order them. So there is no general answer to what a contract must look like. This usually depends on the situation. There are also differences between legal transactions in the B2B and B2C sectors.

The most common types of contract are:

Purchase contracts

Employment contracts

Partnership agreements

Lease agreements

• Supplier contracts
• Leasing contracts
• cell phone contracts
• Maintenance contracts
• Software contracts
• Terms and conditions
• Each of these types of contract consists of identical compulsory and different optional components. Compulsory components such as information about the parties to the contract belong in each of the contracts. In certain cases, such as the purchase of land or the formation of a GmbH, a notarial certification is necessary. Otherwise, the entire contract is invalid.
• Who should create the contracts?
• Since contracts create important connections and legal consequences, they should be created by specialists. The cost of personal legal advice can, however, be high. Alternatively, you can use contract management software that has been developed together with legal experts.
• Our tips for saving costs when creating a contract

1. If you choose against contract management tools, use free sample contracts from the chambers of commerce.

For standard contracts, the chambers of commerce of all countries provide free patterns. Here you just have to insert your details and those of your customers and have the contract signed afterwards. However, in practice, these sample contracts rarely meet all requirements.

2. Digitized legal services

A solution that offers more flexibility is the creation of personalized contracts with "buildings". These are digitalized legal services, also known as legal tech services. On platforms like

PACTA

companies and lawyers meet to jointly draw up contracts and reduce costs through the automation of legal processes.

3. Flat rate legal advice

A cost-effective and safe solution is the flat-rate legal advice for drawing up basic contracts. This is particularly worthwhile for terms and conditions and purchase contracts. With a one-time creation of sample contracts, the expenses can be significantly reduced. You can manage the sample templates with small adjustments over and over again in a contract management software.4. Contract management softwareContract management systems offer a particularly good price-performance ratio. You will find plenty of suitable contract management software on OMR Reviews with ratings and testimonials from users. They will help you find the best solution for your business.

Especially popular are currently:

We have listed the best contract management software for you and compared details such as prices for you!

Conclusion: this is the best way to set up a contract

There are numerous types of contracts. They regulate your rights and obligations as well as those of your contract partners. Some contract content is mandatory, others are freely chosen by the parties. Legal knowledge is definitely useful when drawing up a contract, especially if you are working with Word and Co. However, they are not absolutely necessary. You have the least work and responsibility if you commission a lawyer, but this requires a not inconsiderable budget. Your price-performance winner could therefore be a contract management tool. With this, you create and manage legally compliant, uniform and professional contracts of all kinds in a single software.Vertragsmanagement-Softwares mit Bewertungen und Erfahrungs-Berichten von Nutzer*innen. Sie helfen Euch dabei, die beste Lösung für Euer Unternehmen zu finden.

Besonders beliebt sind aktuell:

ContractHero Vertragsmanagement

Icertis

ContractSafe

Agiloft

EASY Contract

Contractbook

Parashift

Inhubber

Wir haben die besten Vertragsmanagement-Softwares für Euch aufgelistet und Details wie Preise für Euch verglichen! 

Fazit: Das ist der beste Weg, um einen Vertrag aufzusetzen

Es gibt zahlreiche Vertrags-Arten. Sie regeln Eure Rechte und Pflichten sowie die Eurer Vertragspartner*innen. Einige Vertragsinhalte sind Pflicht, andere werden von den Parteien frei ausgewählt. Rechtliche Kenntnisse sind beim Erstellen eines Vertrages durchaus sinnvoll, vor allem wenn Ihr mit Word und Co. arbeitet. Unbedingt notwendig sind sie aber nicht. Am wenigsten Arbeit und Verantwortung habt Ihr mit der Beauftragung eines Anwalts, doch das erfordert ein nicht unerhebliches Budget. Euer Preis-Leistungs-Sieger könnte daher ein Vertragsmanagement-Tool sein. Mit diesem erstellt und verwaltet Ihr rechtskonforme, einheitliche und professionelle Verträge jeder Art in einer einzigen Software.