Most larger organizations have clear guidelines for who can sign contracts and how they must be reviewed internally before signing.
However, it's common for smaller and medium-sized companies to overlook the essential elements and not have a proper contract review checklist in place.. This can and often will cause problems, so signing contracts is important only once they have completed the following checklist.
Even if you are the smaller party, you have the right to take your time to understand and negotiate the terms.
This checklist also helps you prepare better contracts for your partners.
1. Identification of the Parties
It must be absolutely clear who the parties signing the contract are. A common mistake is to sign a contract between two persons or brands without clearly identifying the natural or legal person behind it.
As a rule of thumb, the parties are clearly identified if there is no doubt about who the particular person or company is.
1.1 Individual Party
If a party of the contract is an individual, it's a good practice to include the following in the contract:
- Individual's nationality
- Date of birth and/or identification number
- Document number (e.g., passport number)
- Address (not critical, but good for legal notices, as not all contracts have a notifications clause).
1.2 Legal Entity as a Party
If a party is a legal entity, the easiest way is to ask for an incorporation certificate, which usually covers all the details that allow you to identify the company.
The contract should include the following information about the party:
- Entity name as in the registration certificate
- Entity company type
- Entity registration number or other identifying number
- Entity's registered or business address
- What is the name and title of the person signing the contract on behalf of the party? What is their legal basis for representing the company?
Is the person even eligible to sign a contract?
Not every employee can sign a contract on behalf of the company. The contract is valid only if the person signing the contract is an official signatory of the company.
If it's an important agreement, it's also a good idea to independently verify the company's status. This can be easily done using Companies House (Indonesia, the Philippines, Singapore, Malaysia, Thailand)
2. Intention of the Agreement
Clearly identify the intention and scope of the agreement in the initial clauses or recitals. Additionally, ensure that consideration, indicating the benefit exchanged for goods/services as per the agreement, is clearly defined.
3. Signing Date vs. Effective Date
The signing date is when the contract is signed, but the contract can start at a different date. If that's the case, ensure the effective date is clearly defined.
4. Term and Termination
Thoroughly examine the terms and termination clauses to fully understand what you are signing up for and how to stop the contract if needed.
Pay close attention to automatic renewal provisions and any stipulated non-termination periods.
How easy is it to get out of the contract?
Before signing a contract, ensure you understand the termination clauses. A common mistake is assuming that any contract can be terminated by notifying the other party. Many contracts don't allow termination ahead of time (unless agreed by both parties) or renew automatically unless canceled at a time.
5. Exclusivity
Be careful with exclusivity clauses, assessing whether they align with the partnership's intended nature. We recommend strongly negotiating this clause, especially if it's beneficial for the other party but not to you.
6. Dispute Resolution and Governing Law
Ensure that the contract includes clear provisions for dispute resolution and specifies the governing law to be applied in case of legal conflicts.
7. Validity of Clauses
Review the contract to confirm the validity and enforceability of all clauses, ensuring that they comply with legal requirements and serve the intended purpose.
8. Non-Compete and Non-Solicitation Clauses
Carefully assess non-compete and non-solicitation clauses to understand their scope and implications on future engagements and activities.
9. Contract Title and Number
While the contract title and number may not carry significant legal weight, they can aid in identifying the contract during negotiations or disputes.
By thoroughly going through this contract review checklist before signing, individuals and entities can mitigate risks and establish a solid legal foundation for their agreements. Seeking legal guidance when dealing with complex contracts is always advisable.