Understanding Understanding business contractbusiness contractss

By : Lita Siregar & Bimo Prasetio

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FormFormA document containing written agreements entered into two parties for their mutual benefit, especially in business matters

PurposePurposeAdministrative data and evidence in the future

What is contract What is contract ??

Identify the background, aims and purposes of each party who want to enter into contract.

Know the types of contract that will be used. For example: Lease Agreement, Trade Contract, and so on.

Identify the identity of authorized parties (individual, legal entity and its authorized proxy, and so on)

Agreed rights and obligations

Contract Contract Preparation Preparation

Attitudes before drafting a contract

KNOW THE REGULATIONGet familiar with the regulations, both general regulations and specific regulations.

MUST BE EXAMINED: Who is the authorized party to

sign the contract? Is the transaction need General

Meeting of Shareholders (GMS)’s approval?

Is there any limitation on company’s Articles of Association?

Keep calm Health physically and mentally Focus

Must be prepared well Things to do before drafting a contract? What things that must be agreed? How to present the agreement properly? How if one party does not fulfill its need? How to terminate? Is there any addition?

GOOD CONTRACTGOOD CONTRACT

• ≠ do not use part of speech

• Use plain sentence • Use short paragraph

GOOD CONTRACT GOOD CONTRACT (2)(2)

Plan your contract Start from the most

important information Use plain sentence Use short paragraph Use active voice

THINGS TO DOTHINGS TO DO

Use long sentence just straight to the point

Use jargon Use passive voice Use outdated words Use legal jargon that is not

understood

THINGS TO AVOID IN A THINGS TO AVOID IN A CONTRACT CONTRACT

Contract Date Parties Consideration Definiton

CONTRACT CONTRACT STRUCTURSTRUCTURE E

Agreement between two parties

Failure possibilities Finalization/Execution Applicable law and law

domicile Additional documents

A.Time terminology Be careful when using time terminology for example:

“within”, “since”, “after”, “when” Understand your position (things to do and not to do)

when drafting “time” clause

B.“and” versus “or ” Be careful in using “and” or “or” Identify your intention. You can use “both”, “between”,

or “together”

C.Be careful when using “will”, “must”, “may”

Always use “must” to bind something

CONTRACT DRAFTING CONTRACT DRAFTING STRATEGYSTRATEGY(1)(1)

D. Other confusing words Be careful with upcoming interpretationExample: “This clause is applicable for local goods and supplier”

Is this clause also applicable for foreign supplier?

Proposed wording:“This clause is only applicable for local goods and local

supplier”

E. Settlement and Domicile Choose law and domicile in where the assets of related party

residing

CONTRACT DRAFTING STRATEGY (2)CONTRACT DRAFTING STRATEGY (2)

Is my writing easy to understand? Is my writing suitable with my reader target? Is my writing legally accurate?

IN THE BEGINNING Always plan your contract before drafting it

¬What is the most information needed by the reader?

¬Follow the process and logical transaction ¬Combine similar regulations

IMPORTANT SIGNS IN IMPORTANT SIGNS IN MAKING CONTRACTS MAKING CONTRACTS

1) Choose clear numbering

2) Use consistent words

3) Be careful with used references.

NUMBERINGNUMBERING

Why putting “Definition”?

To shorten the sentece “Company Law” means Law No.40 of 2007 on Limited Liability Company

To eliminate ambiguity

To create flexible meaning “Sell” is including making an offer to sell

DEFINDEFINITION ITION

Be consistent Do not put substantive provision Be careful with inclusive definition Avoid definition that just be used 1 (one)

time Avoid the confusing or deviating definition

PRACTICAL GUIDE IN DRAFTING PRACTICAL GUIDE IN DRAFTING “Definition”“Definition”

Use good example

Never assume that the example is correct or new

Re-examine the example, whether that example is approrite with your needs

Try to find out the background of the example

ARTICLE/CLAUSE ARTICLE/CLAUSE EXPLANATION EXPLANATION

Read the Contract carefully

IMPORTANT IMPORTANT !!!!!!!!Do not use or delete

clauses that you do not understand

Use the primary law or regulation when drafting the contract

Start the drating by logical plan Separate and classify the ideas into different

clause/article Use simple term when drafting definition

clauses Be careful when inputting example Re-examine the contract before printing it.

SUMMARYSUMMARY

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