Contracts hold all parties involved accountable for agreed-upon obligations. Discover the steps and essential elements for writing your own.

What is a contract?

A contract is a binding and enforceable agreement between two or more parties. When parties sign a written agreement or binding contract, they voluntarily agree to act according to the rights and obligations defined in the document. Oral agreements may be fine for small transactions, but everyone can usually benefit from putting a contract in writing. Written contracts can ensure that your interests and other parties’ obligations are enforceable, and the contract can spell out solutions if someone breaks the agreement.

A man and woman sitting at a table look at a contract on a laptop.

5 different types of contracts.

Learning how to formalize an agreement with a contract starts with understanding the different types of contracts and their uses.

The following are five common types of contracts:

1. Sales contracts.

Every sale can be seen as a contract between the buyer and seller. The buyer promises to pay for a property or service (such as intellectual property like music or images), and the seller promises to transfer ownership of that property, provide the purchased goods, or perform the purchased service. Examples of sales contracts include a promissory note, a bill of sale, a warranty or security agreement, and a purchase order.

2. Employment contracts.

Employment contracts relate to the terms of employment, including services for hire from freelancers, consultants, small businesses, or other independent contractors. These types of contracts may also contain termination agreements in case the worker’s employment is terminated, as well as nondisclosure agreements (NDAs) and confidentiality clauses, which protect confidential information.

3. General business agreements.

These types of agreements can cover all different aspects of doing business, such as partnership agreements and formation, business owners, capital investment, and the sale or purchase of stock. NDAs, indemnity agreements, or waivers of rights are also usually considered business agreements.

4. Settlement agreements.

Parties to a dispute might agree to a settlement to avoid going to court. The terms are often set out in a settlement agreement signed by the parties.

5. Property contracts.

These types of contracts include leases for commercial, retail, residential, and parking spaces. They often cover details like maintenance expectations, tenant insurance, security deposit amounts, and terms and conditions for the return of the property upon completion of the lease.

How to write a contract agreement in 7 steps.

Every contract document must be customized for specific needs and circumstances. However, most contracts follow a standard process you can use to create a document in a streamlined fashion. Here, we’re taking a closer look at the seven steps to follow when writing a contract.

1. Determine the type of contract required.

Start with your legal needs and the relationships you need to define formally. Consider the different types of contracts and choose the one that is the closest fit for your situation. For example, an employment contract will require different terms than a sales contract. Also, consider discussing the contract needs with others in your department or on your legal team.

2. Confirm the necessary parties.

With the right contract type in mind, now you can iron out who should be part of it. Include people from your organization with a vested interest in the contract’s terms and structure, from project managers to human resources. Be sure to involve anyone who is required to review the contract for approval or provide signatures at later stages.

You’ll also want to put together a list of all the individuals from external sources, such as candidates, suppliers, or vendors, who need to be included in the final document. Make sure to gather all of their contact information.

3. Choose someone to draft the contract.

In many cases, choose someone with a specialized background based on the topic. Most corporations have a legal team or lawyer put together their contracts to ensure that the language is clear. These contributors may also provide legally approved templates that internal personnel can customize.

Aside from legal experts, other stakeholders in an organization may know how to write a contract in their particular field. For example, an employment contract could be expertly constructed by a member of your human resources team rather than the hiring manager.

Organizations typically prefer to originate a contract rather than receive one from an outside source so they can more easily control the terms of the agreement.

A contract for manufacturing services displays on a tablet.

4. Write the contract with the proper formatting.

Whether you use an existing template or start from scratch, the contract should be appropriately formatted and written in a professional manner. When writing a contract, you should include an introductory section that lists and defines all of the interested parties. A well-constructed contract will cover its duration and the specifics regarding the terms of the agreement between the parties.

The tone of a contract should be formal and concise. All relevant terms should be highlighted and defined, especially anything proprietary or technical, to ensure all parties understand the terms and inclusions. Use concrete words rather than industry jargon to keep the intent clear.

A properly formatted contract will typically have copy that is left-aligned and single-spaced. If the contract is long or has multiple sections, a table of contents should be included to make it easier to review. Use shorter paragraphs to group similar concepts together and break up the document accordingly with headings and subheadings to enhance readability.

Contracts are legally binding documents that also require signatures. Allocate ample space to collect the signatures of all the parties involved. To do this, type each individual’s name, title, and company affiliation and leave room for them to sign either physically or electronically via e-signature.

5. Review the written contract with a lawyer.

Even if you’re using a template provided by a legal team, you’ll want to pass your contract to a lawyer for review before issuing it for signature. Suppose you have concerns about whether the contract covers the terms you aimed to set. In that case, you can ask the lawyer to specifically look for or provide language to substantiate your position. The lawyer should serve as an advocate for the company’s and your best interest, and a legal review can help ensure that what you are agreeing to is what you intended.

6. Send the contract agreement for review or revisions.

Before sending the contract out for external approval and signature, you’ll also want to make sure that all internal stakeholders have a chance to review its content. While the contract may be legally solid, other team members may notice exclusions or required changes regarding the specifics related to their area of expertise. Instead of directly editing the document, capture any feedback via redlines that you can review, and if necessary, pass it back to your legal team for further assessment before finalizing the document.

7. Sign the written contract electronically.

With the contract finalized, all parties can read the agreement and choose to confirm the terms by signing the document. All parties should receive and retain a completed copy of the contract for their records. The easiest way to complete this task is through electronic signatures. Not only does e-signing cut down on the time it can take to issue and collect approvals, but Adobe Acrobat for business enables users to send a document to multiple signers simultaneously, streamlining workflows without sacrificing security.

Elements to include when writing a contract.

Before entering into a contract agreement, all parties should clearly state their intention to enter into the contract and agree to every part of the contract. Each party must also have capacity, meaning the parties have the requisite ability to understand the terms and obligations detailed in the contract. If one of the parties is a minor, has a disability that prevents comprehension, or is intoxicated, then that party may lack the capacity to sign the contract.

Consider these important elements when writing a contract:

  • Basic information. The legal names and/or business names of the involved parties, their addresses, and a description of the property or service being exchanged for money or other consideration.
  • Rights and obligations. The terms of the contract, such as the rights and responsibilities of all involved parties.
  • Specific considerations. The detailed description of the property or item(s), including the condition, what the parties will and will not be responsible for, and what, if any, warranty or guarantees exist.
  • Dates. Important dates, such as the date of sale, dates for any warranties in effect, and due dates for any payment installments.
  • Termination. The different termination rights, if any, of the parties and what happens after termination.

The end of the document must clearly indicate where all contracted parties must sign to finalize the agreement.

A woman sitting at a desk types on her laptop.

How to make a contract final.

Contract law is complicated and full of nuance and, sometimes, legalese. Before you create, finalize, or sign a contract, especially if you learned how to write a contract yourself, speak to an attorney for advice.

Be prepared to haggle.

Negotiation is a natural part of any business relationship. Prepare to negotiate the terms of your contract. Know where you have room to give and where you have to stand firm.

Seal the deal.

Complete binding contracts more quickly and securely with Acrobat. Based on your contract templates, you can create branded fillable forms and send them out for electronic signatures.

Improve efficiency with contract management processes.

If you anticipate dealing with a large number of contracts on a regular basis, enhance your workflow by implementing a contract management process. This process formally outlines the key steps to initiating, drafting, reviewing, and approving a contract so that no details are missed along the way. In high-volume situations, a contract management process can also help you track each document’s development phase, giving you insight into your team’s bandwidth.

A major component of a contract management process is ensuring you have the right tech stack to support your needs. Using software that allows individual contributors to leave comments or redline content can streamline the review process while preserving the document’s integrity. Software that supports e-signatures with tracking and security can also ensure that the right people can follow through with contract signing in a timely fashion.

A smartphone dispays a contract.

Learn more about the benefits of digital workflows.

Find out how the Adobe legal and government relations teams reduced paperwork and sped up contract completion and accuracy with Acrobat. By creating preapproved contract templates and establishing efficient workflows, these teams were able to shorten contract completion time by 73%.