How to Draft a Contract: 2025 Step-by-Step Guide

How to Draft A Contract?

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‍What is a contract?‍

A contract is a legally-binding agreement between two or more people or companies.

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Think of it as a list of promises: the parties will state what their rights and obligations are, what terms need to be followed, what deadlines need to be met, and what their expectations of each other are. The fundamental elements of a contract are as follows:

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When do you need a written contract?

You should use a written contract whenever you’re entering into an agreement that involves money, services, or responsibilities — especially if the deal is important or ongoing. Examples include:

Hiring a freelancer or employee
Selling goods or services
Lending or borrowing money
Starting a business partnership
Licensing intellectual property

While some verbal agreements can be legally binding, written contracts provide clear proof of what was agreed and help avoid “he said, she said” arguments later.

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6 essential elements of a contract

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Element

Explanation

Offer and acceptance

One party makes an offer, and the other accepts it. The parties must reach a consensus on the terms and conditions of the contract

Intention to create legal relations

Both parties must intend to enter into a legally-binding agreement.

Certainty

The terms of the contract should be clear and easy to understand.

Legal Capacity

Both parties must be capable of entering into a contract (i.e.: over the age of 18, not influenced by drugs or alcohol, etc.)

Consideration

Each party must provide something of value (e.g.: money, goods, services) in exchange

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Let’s understand these essential elements of a contract:

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Offer and Acceptance

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Offer and acceptance are fundamental concepts in contract law that determine when a legally binding agreement is formed.

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Usually, one party will propose an offer. For example, a company might send a job offer to an applicant, with a copy of the employment contract included. Or, a business might contact another business, offering to sell its wares or provide some other form of service. In order for the offer to be recognised by the court, it needs to be specific and definite.

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Contrast this: “I’m interested in buying your products. Let’s talk more later.” vs “I’d like to place an order for 1,000 boxes of 9-row cherries. We’ll pay you Z thousand dollars via bank transfer upon arrival. Please ensure it’s delivered to this address by 10th January, 20XX.” The latter would be viewed as a proper offer, while the latter is not meant to be legally binding.

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Acceptance is the complement to an offer. The party who received the offer must express that they are agreeing to all of the terms that have been laid out. This can be done orally, through text / email, or via conduct (e.g.: handing over money to a cashier usually implies you are agreeing to the sale).

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What happens if you aren’t satisfied with the terms? Suppose the orchard owner can’t deliver by 10th January and believes the price is too low. If he replies, saying he’s willing to sign the contract only if delivery is delayed and the price increased, this is not acceptance. It is a counter-offer, which legally terminates the original offer. The original party (in this case, the restaurant owner) must then accept the new offer for a contract to be formed

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Intent to Create Legal Relations

For a contract to be valid and enforceable, both parties must intend for their agreement to be legally binding and enforceable in law. What does this mean?

Contrary to what it sounds like, the courts are not looking at the parties’ mindset and thoughts. Rather, they will use conduct and circumstances to determine if the parties objectively intended to enter into the contract.

Usually, if a deal is struck in a commercial context, it will be treated as if the parties intended to be legally bound by their promises.

Consideration

In a contract, both parties must provide consideration. This means that if A and B enter into a contract, each of them must either give something beneficial to the other, or face some sort of inconvenience or detriment.

The most common example is a sales contract. The cherry-seller provides the restaurant with produce (goods), whereas the restaurant owner provides payment. Both sides are giving up something valuable, and receiving something valuable in return.

Will a contract still be valid if A gives a benefit to B, but rather than a direct exchange, B gives the benefit to C? Certainly! Sometimes, contracts are set up for the benefit of a third party: for example, if a man hires a lawyer to write him a will, the benefits (e.g.: receiving an inheritance, less hassle) are enjoyed by his children. As long as each party has given consideration, it doesn’t matter who receives those benefits.

Certainty

For a contract to be legally enforceable, it must also be sufficiently certain. In other words, its terms must be clear enough that the parties — and, if necessary, a court — can understand what has been agreed.

Certainty is important because it helps the parties understand their contractual rights and obligations. It minimises the chance for confusion or costly legal disputes. Courts are generally reluctant to “fill in the gaps” for a contract that is missing vital information, because there is a risk of holding parties to terms that they did not agree to. As such, it is more likely that they will declare the entire contract void for uncertainty.

Example: Alex and Jamie agree that Alex will sell “some stuff” to Jamie “sometime soon” for “a fair price.” But what is “some stuff”? How much will it cost? When will the sale happen? Since these details are too vague and uncertain, the court may decide there’s no valid contract.

Legality

The subject matter of a contract must be legal.

Imagine, for example, you engage an advertising agency to put up a neon sign for your shop. Weeks later, the government passes a law to ban neon advertising at night. As such, the original contract will have to be modified to comply with regulations.

Hence, before you undertake any land or renovation projects, it’s always important to check with your local authorities on what the legal requirements are.

Capacity

Capacity to contract refers to a person's legal ability to enter into a binding contract.

Generally, anyone 18 or older is considered to have full capacity. Minors often require their parents’ consent in order to enter into contracts. This, however, can vary depending on jurisdiction, so make sure to check with your local authorities.

People suffering from mental illness or extreme drunkenness at the time of contracting may not have capacity if they cannot even understand the nature of the transaction.

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Need help checking for these elements? DocLegal.ai templates are legally reviewed and structured to include all key components automatically.

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Can I draft my own contract?

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Yes, you can draft your own contracts. No special qualifications are required, and you only need to ensure the contract fulfills the elements of a contract for it to be enforceable.

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That said, writing contracts from scratch can be time-consuming and risky. That’s where DocLegal.ai comes in.

It generates lawyer-reviewed templates in minutes
You can customize terms easily based on your needs
It's affordable — around the price of a cup of coffee

With DocLegal.ai, drafting your own contract is easy, fast, and legally smart.

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How long does it take to draft a contract?

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It can be time consuming and risky to create your draft contract from scratch! That’s where tools like DocLegal.ai come in.

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DocLegal.ai offers an AI legal document generator that is trained to generate 2800+ lawyer-approved templates. This AI legal tool makes contract drafting and customization fast, simple, and affordable (about the price of a coffee!). Whether it’s a freelance agreement, loan contract, or NDA, DocLegal.ai can create professional documents in minutes with confidence.

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How to Draft a Contract: Step-by-Step Guide

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Step 1: Start with a Legal Template

Use a professional legal template as your foundation.

Use DocLegal.ai to generate lawyer-approved, customized templates for 2800+ use cases.

Step 2: Define Purpose and Scope

Clarify what the contract is for (employment, sale, service, etc.), and for how long it applies.

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Step 3: Identify the Parties

Name individuals or businesses clearly, with legal names and identifiers (e.g. company number, ID).

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Step 4: Outline the terms and conditions

Make sure the contract includes essential terms and conditions such as:

Responsibilities: Each party’s obligations must be clearly described — whether it's making a payment, providing goods, or delivering a service. Be specific to avoid confusion or future disputes.
Key Deliverables: List exactly what will be delivered, including quantity, quality, and timing. This ensures both parties have the same expectations.
Payment Terms: State how much will be paid, when, and how (e.g. lump sum or installments). If interest is charged, include the rate and how it's calculated.
Penalties for Late Payment / Performance: Include consequences if deadlines or payments are missed, such as late fees or interest increases. These terms encourage accountability and timely performance.
Limitation of Liability: This clause limits how much one party has to pay if something goes wrong. It can cap financial liability or exclude certain types of losses.
Termination and Force Majeure: Explain how the contract can be ended early, such as by giving notice or for breach. Include a force majeure clause to cover unexpected events like natural disasters or pandemics
Boilerplate Provisions: These are clauses that can be used in multiple documents.

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DocLegal.ai includes all of these clauses in its templates, so you don’t have to start from scratch.

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Step 5: Review Your Draft Contract

Eliminate ambiguity and jargon
Use headings, numbering, and plain English
Check for consistency, spelling, and grammar
Make sure everything reflects what was agreed

Use DocLegal.ai's smart editing tools to make revisions quickly and clearly.

Step 6: Finalize and Sign

Include signature blocks for all parties
Consider notarization or witness signatures
Date the agreement and store copies securely

DocLegal.ai allows you to generate, edit, and store contracts all in one place.

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Related Article: How to Draft a NDA with DocLegal.ai

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Final Contract Checklist:

Are the parties clearly named? Double-check that there is no ambiguity about the identity of the parties.
Can the parties legally enter into the contract? All people entering into the contract should be over the age of majority, which is typically 18 years old. In case you are contracting with a minor, you would need the parent or legal guardian’s consent. Additionally, the parties should be mentally competent and able to understand the terms of the contract. If they are influenced by, for example, drugs or alcohol, the contract would not be legally binding.
Do the parties agree on the contractual terms? Before drafting the contract, it is best to sit down with the other party, and to discuss the terms that you would like to put into the contract. For example, for an employment contract, you would need to reach a consensus on: