Common Mistakes to Avoid When Drafting Contracts for Your Business
We understand how critical business contracts are to the success and security of any company. Business owners depend on clear, enforceable agreements to protect their interests, build strong partnerships, and support growth.
However, too many businesses fall into avoidable traps when drafting contracts. In Texas, the law gives parties the freedom to define their relationships, but poorly written agreements often create more problems than they solve.
Drafting strong business contracts requires more than just plugging names and numbers into a template. It demands careful thought, foresight, and a deep understanding of both the legal requirements and the practical realities of the deal.
We work closely with our clients to help them avoid common mistakes that could expose them to unnecessary risk and cost.
Failing to Clearly Define Terms and Obligations
One of the biggest mistakes we see when reviewing business contracts is the failure to define key terms and obligations with precision. Texas courts enforce business contracts based on the plain meaning of the language used. If a contract leaves room for different interpretations, it opens the door to disputes.
When drafting business contracts, we always make sure that the duties of each party are spelled out clearly.
Performance obligations, delivery schedules, payment deadlines, and responsibilities must be detailed enough that an outside reader could understand what is required without guessing. Ambiguity benefits no one and can lead to expensive litigation when expectations aren’t met.
Relying on Verbal Agreements or Side Deals
In Texas, certain agreements must be in writing to be enforceable under the Statute of Frauds. Business contracts that involve real estate, services lasting more than one year, or sales of goods over a certain value are just a few examples.
Yet, even when not legally required, we encourage all business agreements to be fully documented in writing.
Relying on handshake deals or informal emails often leads to disputes. Memories fade, misunderstandings arise, and verbal promises are harder to prove in court. When we draft business contracts, we incorporate all material terms into the agreement itself.
We also include clauses that state the contract is the complete and exclusive statement of the agreement, preventing future arguments about unwritten side deals.
Using Vague or Overly Broad Language
Another mistake businesses often make is using vague or overly broad language in their contracts. General statements like "Party A will provide services to Party B" without further details about what those services include create confusion.
We believe that good business contracts should be as specific as possible without being overly rigid. Flexibility can be built into the agreement through well-crafted clauses, but vagueness only invites trouble.
In Texas, when a court cannot determine the essential terms of a contract, it may find the contract unenforceable. Our goal is to eliminate doubt by choosing precise, clear language that accurately reflects the parties’ intentions.
Ignoring Dispute Resolution Provisions
Many business owners focus heavily on the commercial terms of their contracts but overlook what happens if things go wrong. In our experience, failing to include strong dispute resolution provisions is a critical oversight.
Business contracts should address how disagreements will be handled. Will the parties mediate, arbitrate, or go straight to court?
If the court is the path, which jurisdiction will hear the case? In Texas, parties have the freedom to agree in advance on these points. We draft dispute resolution clauses carefully so that if disputes arise, the process is predictable and fair, reducing the time and cost involved.
Failing to Limit Liability Properly
Texas law allows businesses to limit their liability through contract, but the contract must be drafted with precision. Many business contracts either fail to include limitation of liability clauses altogether or draft them so poorly that they are unenforceable.
We help our clients think carefully about the types of losses they are willing to accept responsibility for and draft clauses that reflect those decisions. For example, a contract might limit damages to the amount paid under the agreement or exclude liability for consequential damages.
These clauses must be drafted in clear, unambiguous terms to be enforceable under Texas law. Careful attention to this issue can save businesses from devastating losses if something goes wrong.
Forgetting About Indemnity and Insurance Requirements
In certain industries, indemnity clauses and insurance requirements aren’t optional; they are critical business protections. Unfortunately, many business contracts either omit these clauses or use language that is unenforceable under Texas law.
Indemnity clauses allow one party to shift certain risks to the other party. In Texas, special rules apply to indemnity agreements, especially in construction and similar industries.
We make sure that any indemnity provisions comply with statutory requirements and reflect our client’s intended risk allocation. We also coordinate indemnity clauses with insurance requirements so that coverage is available when needed.
Overcomplicating the Contract Language
While business contracts must be thorough, using overly technical or convoluted language creates unnecessary barriers to understanding. Some businesses believe that using complicated terms or legal jargon makes a contract more impressive or authoritative, but in reality, it often has the opposite effect.
At The Fixed Fee Law Firm, PLLC, we strive to draft business contracts that are clear and readable. A well-drafted agreement should allow both parties to understand their rights and obligations without needing a law degree. Simplicity and clarity are signs of strong legal drafting, not weakness.
Overlooking Termination Rights
Another common mistake we often see involves termination provisions. Many business contracts fail to adequately spell out when and how the agreement can be ended. Without clear termination rights, a party may find itself stuck in an unfavorable contract with no easy way out.
We help our clients think through how they want the relationship to end if necessary. The following will be addressed as needed:
Termination for cause
Termination for convenience
Notice requirements
Any associated penalties
This foresight protects businesses when circumstances change and helps avoid expensive disputes over how and when a contract can be ended.
Copying Contracts Without Customization
Using a prior contract or downloading a template from the internet may seem like a shortcut, but it often leads to bigger problems. Business contracts must reflect the unique facts, goals, and risks of each transaction.
Blindly copying language from another deal usually means critical issues are overlooked or the contract contains provisions that do not fit the situation.
We draft every contract with the specific transaction in mind. Even when starting from a model form, we carefully tailor the language to meet the client’s needs. Texas businesses face specific legal requirements and business realities that a one-size-fits-all approach cannot address.
Failing to Plan for Changes and Growth
Businesses change over time, and contracts should anticipate that possibility. Many business contracts fail because they do not provide flexibility for changes in market conditions, business operations, or strategic direction.
We advise our clients to build in provisions that allow for amendments, assignment rights, or renegotiation under certain circumstances. Thoughtful drafting can provide the flexibility businesses need to adapt without losing the protections they have built into their contracts.
Not Reviewing Contracts Regularly
Even a well-drafted contract can become outdated if left unchecked. Changes in the law, new regulations, or shifts in business practices may render old contracts ineffective or even illegal.
At The Fixed Fee Law Firm, PLLC, we encourage our clients to review and update their business contracts regularly.
When laws change, such as updates to data privacy rules or employment regulations, contracts should be reviewed to maintain compliance. Regular reviews also provide an opportunity to strengthen protections based on lessons learned from past experiences.
Missing Signature Requirements
Finally, one of the simplest but most costly mistakes we see is the failure to properly execute business contracts. A contract that lacks necessary signatures or is signed by someone without authority can be worthless.
We make sure our clients understand who must sign the contract and under what authority. We also recommend procedures for maintaining copies of fully executed agreements. Texas law generally requires signatures to be from authorized representatives for the contract to be binding. Attention to this final detail is critical.
The Next Steps
At The Fixed Fee Law Firm, PLLC, we believe that every business deserves contracts that are clear, enforceable, and tailored to their specific needs. We’re proud to serve the Texas cities of Dallas, Houston, San Antonio, and the surrounding areas. Call today for more information on how we can help.
