What Does a Contract Need to Be Legally Binding?

A lot of people thing that a contract needs to be complicated to be legal. Is that true? No. A contract doesn’t have to be complicated to be legally binding.

So what makes a contract legal? In this post, we’ll answer seven key questions about what a contract needs to be legally binding. We’ll also help you know when it’s best to get extra help from an attorney.

Even a basic knowledge of what makes a contract legally binding can save you time, stress, money, and mistakes.

1. Do Contracts Need to Be Reviewed by an Attorney?

Legally speaking, a contract does not need to be reviewed by an attorney to be binding. However, having an attorney look over your agreement can help ensure it’s enforceable and protects you the way you intend. Contracts can seem straightforward, but it’s easy to miss key details, especially in more complex agreements. Too many times, we’ve seen dangerous terms placed in the middle of a long, boring paragraph at the end of a contract. Although you don’t need a lawyer to review a contract, they have experience spotting and interpreting complex terms, so your contract works as expected.

2. Does a Contract Have to Be on Paper?

Most contracts don’t need to be on paper to be legally binding. Verbal agreements, emails, and digital agreements can often hold up in court. However, the challenge with verbal agreements is that they’re much harder to enforce because there’s no written record of the terms. Imagine trying to prove what was said in a handshake deal. In court, each side can say what they want. It’s your word against theirs. There’s no paper trail or other proof recording the agreement.

Contracts that need to be in writing to be legally binding.

Here are a few examples:

  • Contracts that cannot be performed within a year
  • Contracts regarding the sale or transfer of land
  • Contracts involving the sale of goods worth more than $500

Although a written contract is not always required, it is best for reducing confusion, providing clarity, and making the agreement enforceable if there’s ever a dispute.

3. Does a Contract Have to Be a Certain Length?

No, there’s no minimum length for a contract to be valid. You don’t need a document packed with legal jargon or pages of fine print. What matters is that the contract includes a promise and an exchange of value—also known as “consideration.”

For example, if you hire a web designer, you promise to pay them. Their promise is to deliver a finished website.

Even a brief, straightforward document can be legally binding if it has a promise and an exchange of value.

4. Who Has to Sign the Contract?

Ideally, all parties involved should sign the contract. This creates a clear record that each party agreed to the terms. However, there are situations where a contract can still be enforceable, even if everyone has not signed. This is especially true if both parties act as though they agreed to it. In other words, acting in accordance with the terms (e.g., paying for services or delivering on promises) can sometimes be as effective as a signature.

5. Does a Contract Need to Be Signed to Be Enforceable?

While it’s always better if a contract is signed, it doesn’t technically have to be signed to be enforceable. If both parties have agreed to the terms and demonstrated that agreement through their actions, the contract may be binding even without signatures. But what would happen if one of the parties who agreed to the contract starts acting against it? For example, what if you agreed to split profits evenly, yet your partner takes more than their fair share? Since your names were not signed to the contract, it does not hold as much accountability as it could. Court could be extra stressful.

A signed contract reduces any room for doubt.

Contrary to popular belief, contracts don’t need complicated legal language to be valid. As long as the contract’s terms are clear and the parties involved understand them, simple, plain English is perfectly fine. You could even write a contract in any language, as long as everyone involved understands it.

However, some legal terms are helpful for writing contracts. For example, terms like “indemnify” can be useful in some cases, but they’re not necessary if the meaning is clear without them. 

So, using simple language makes contracts more accessible and less intimidating. It’s often better for everyone involved.

7. Do Contracts Need to Be Dated or Updated?

No, you don’t need to have a date on a contract for it to be binding, but adding a date is helpful in case there’s ever a dispute. Knowing when the agreement was made can be useful in court, not to mention tracking when the terms were agreed upon.

Similarly, a contract doesn’t expire or become invalid even if it’s never been updated. As long as the terms are clear and both parties continue to honor the agreement, it remains enforceable.

Essential Terms for Powerful Contracts

Some contracts need extra details to be legally binding. Here are a few examples:

  • Non-Compete Agreements: For a non-compete to be enforceable, it needs to have limits on time and geography. For example, a contract might say an employee can’t work for a competitor within a 50-mile radius for two years after they’ve stopped working for their employer. Without these limits, many courts won’t enforce the agreement, as it could unfairly restrict a person’s right to work.
  • Non-Disclosure Agreements (NDAs): NDAs require clear consequences for breaches. Once information is leaked, it’s often impossible to undo the damage. For example, if a competitor gets access to trade secrets, the harm is already done. An NDA should specify the penalties for breaches, so the court knows how to address the violation.

In our perspective, non-disclosure agreements are usually preferred over non-compete agreements. Read more about the different kinds of contracts business owners should have.

4 Key Elements of a Legally Binding Contract

Here’s a quick recap of the things we talked about–terms that makes a contract legally binding:

  • Agreement: Both parties agree to the terms, ideally in writing.
  • Consideration: Each party offers something of value, whether it’s money, services, or goods.
  • Clear Terms: Plain language that all parties understand is sufficient; legal jargon isn’t required.
  • Signatures (If Possible): While signatures aren’t always necessary, having them makes the contract stronger and easier to enforce.

Creating a legally binding contract doesn’t have to be intimidating. Cover the basics we talked about, and you have a stronger position to protect your business, avoid misunderstandings, and ensure that agreements will hold up if ever challenged.

Remember, while an attorney isn’t required to make your contract binding, consulting one is always a good idea for complex agreements or where you don’t care to take the time to sort through the contract terms.

Learn more about contracts: Now that you know what makes a contract legally binding, the next step is to understand how to negotiate effectively. In our next blog, we’ll share practical tips for negotiating contracts. Negotiation helps you get the best possible outcomes for your business while still maintaining good relationships.

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