Legal regulations on drafting business contracts

Drafting business contracts is an essential step in commercial transactions. A clear and comprehensive contract helps safeguard the rights and obligations of the parties. Compliance with legal regulations in contract drafting contributes to minimizing disputes and ensuring effective cooperation. Below, NPLaw respectfully provides Clients with the legal issues related to the drafting of business contracts.

I. The need for drafting business contracts

The need for drafting business contracts has become increasingly important in modern commercial activities. When enterprises and individuals engage in transactions such as the sale and purchase of goods, provision of services, investment cooperation, or other business activities, having a clear, comprehensive, and legal contract helps protect the parties’ interests, limit the risk of disputes, and facilitate contract execution. 

At the same time, in the context of increasingly complex commercial laws, accurate contract drafting also helps enterprises comply with legal regulations, enhance their credibility, and establish a strong legal foundation for sustainable business relationships. Therefore, drafting business contracts is an indispensable requirement for all market participants.

II. Legal regulations on drafting business contracts

1. Principles for drafting business contracts

Pursuant to Articles 3, 117, and 119 of the Civil Code 2015, the drafting of business contracts must comply with the following fundamental legal principles:

• The parties have the right to freely agree on the contents of the contract, provided that such agreements are not contrary to law or social morality. The commitment to and execution of the contract must be based on voluntariness, without coercion, deception, or mistake.
• Although the parties may freely agree on the contractual contents, the provisions of the contract must not violate prevailing legal regulations or contravene social morality.
• Certain types of contracts are required to comply with mandatory forms, such as being made in writing, notarized, or authenticated.

2. Procedures for drafting business contracts

The procedures for drafting a business contract include the following steps:

Step 1: Identifying objectives and the type of contract

• Determining the purpose of entering into the contract (sale and purchase, service provision, business cooperation, etc.).
• Selecting the appropriate type of contract corresponding to the transaction to ensure the correct application of legal regulations.

Step 2: Collecting necessary information and documents

• Legal information of the parties (Enterprise Registration Certificates, identity cards/citizen identification cards, legal representatives, powers of attorney, if any).
• Technical documents, quotations, product/service descriptions, and accompanying commercial terms.
• Review of relevant specialized legal regulations, if applicable.

Step 3: Negotiating contractual terms

• Subject matter of the contract;
• Quantity and quality;
• Price and method of payment;
• Term, location, and method of contract performance;
• Rights and obligations of the parties;
• Liability for breach of contract;
• Dispute resolution methods.

Step 4: Drafting the contract

• Drafting the contract based on the negotiation results and applicable legal regulations.
• The contract contents must be complete, clear, and logically structured, avoiding ambiguity or potential misunderstandings.
• The basic structure should include information on the parties, subject matter of the contract, payment terms, liabilities, sanctions, dispute resolution, and general provisions.

Step 5: Reviewing and revising the contract

• Re-examining the contract contents.
• Engaging an internal legal department or a lawyer to review the contract in order to limit legal risks.

Step 6: Executing the contract

• The parties sign and affix seals (if legal entities).
• For contracts that are required to be notarized or authenticated (such as real estate transfer contracts), the procedures must be implemented in accordance with the Law on Notarization 2014 or relevant specialized regulations.

3. Essential contents to be included in the business contract

Pursuant to Article 398 of the Commercial Law 2005, the business contract should include the following contents:

• Subject matter of the contract;
• Quantity and quality;
• Price and method of payment;
• Term, location, and method of contract performance;
• Rights and obligations of the parties;
• Liability for breach of contract;
• Methods of dispute resolution.

III. Common questions on drafting business contracts

1. Main points to note when drafting business contracts

Important considerations when drafting business contracts include:

• Correctly identifying the contracting parties: The parties to the contract must be clearly identified to ensure legal validity and define responsibilities in the event of disputes.
• Clearly defining the purpose and scope of the contract: The contract must clearly state the objectives, scope of work, and obligations of the parties. For service contracts, the services provided must be described in detail; and for sale and purchase contracts, the goods, types, quantities, and quality must be clearly specified.
• Price and payment terms: The contract should clearly stipulate the price, currency, payment deadline, and payment method (bank transfer, cash, etc.).
• Contract execution period: The commencement date, duration, and termination date of the contract must be clearly stated. Where execution is divided into stages, a progress schedule appendix should be attached. 
• Rights and obligations of the parties: Each party should have provisions clearly defining the rights that they are entitled to and the obligations they must perform, serving as a basis for handling breaches.
• Breach and remedies clauses: Acts constituting breaches and corresponding remedies such as sanctions, compensation for damages, or contract termination should be clearly specified.
• Dispute resolution: The contract should stipulate dispute resolution methods, such as negotiation, mediation, commercial arbitration, or court proceedings, and clearly identify the competent authority to avoid future legal conflicts.

2. Risks arising from drafting business contracts in violation of legal regulations

Potential risks include:

• Invalid contracts: If a business contract violates legal regulations regarding form or content, it may be declared invalid pursuant to Articles 117 and 123 of the Civil Code 2015. When a contract is invalid, the parties are not protected by law and must restore each other to the original state by returning what has been received, which may result in serious legal consequences and substantial losses.
• Legal disputes: Contracts containing unclear or unlawful provisions are likely to give rise to disputes during execution. Then, the parties may incur significant time and costs to resolve disputes through negotiation, arbitration, or litigation. Moreover, under the principle of unfavorable interpretation in civil law, ambiguous clauses are often interpreted against the drafting party.
• Financial losses: When a contract is declared invalid or terminated, the parties may suffer significant financial losses, such as loss of invested capital, business opportunities, or obligations to compensate the other party. In addition, costs associated with remedying the consequences of an invalid contract (such as asset restitution, interest, and indirect losses) may impose a heavy burden on enterprises.

3. Is it permissible to authorize a third party to draft the business contract?

Pursuant to Article 562 of the Civil Code 2015, an authorization contract is an agreement whereby the authorized party is obliged to perform work on behalf of the authorizing party, and the authorizing party is only required to pay remuneration if agreed or if provided by law.

Accordingly, individuals or organizations are fully entitled to authorize a third party to draft business contracts and perform related tasks in connection with contract formation, unless such authorization is prohibited by law.

4. How are disputes handled when arising from incompletely drafted business contracts?

Pursuant to Article 317 of the Commercial Law 2005, where disputes arise due to incomplete drafting of the business contract, the parties may resolve them in the following order:

• Direct negotiation between the parties to seek a common solution.
• Mediation through an agency, organization, or individual agreed upon by the parties as an intermediary.
• If unsuccessful, the dispute shall be resolved by arbitration or a competent court in accordance with the law.

5. When should professional services be used for drafting business contracts?

Enterprises should engage professional services (lawyers, law firms, or legal consulting organizations) to draft contracts in the following cases:

• High-value or high-risk transactions, such as investments, asset acquisitions, joint venture capital contributions, or share transfers.
• Transactions involving foreign laws or international treaties, such as import-export contracts, technology transfer, or franchising.
• Contracts with complex legal elements, such as staged payment terms, confidentiality clauses, or intellectual property provisions.
• Where prevention of legal dispute risks is a priority, as professional service providers are capable of anticipating risks and incorporating clauses to protect clients’ interests.

IV. Legal consulting services on drafting business contracts

The above is NPLaw’s article on drafting business contracts. With a team of experienced lawyers and legal specialists, NPLaw is always willing to accompany, advise, and support clients on legal matters related to the drafting of business contracts. Should you require legal assistance, please contact NPLaw immediately.