Did you know that 64% of businesses that fail do so because of inadequate management and business contracts?
Recent survey even shows 60% of small businesses don’t even have a legal contract from a trusted contract lawyer. Of those that do, only 10% ask for a business lawyer to draft up a contract (Journal of Contract Management).
For many small businesses, this is simply good enough. They trust their contractors too much. Their relationship with freelancers no longer run through formal commercial contracts. However, as we’ve seen above, there are crucial reasons why professional contract attorneys must draft them.
If you want to make sure that your, say, fresh start-up or freelance relationships stay smooth and avoid any unnecessary headaches down the road, business contracts should be the foundation of any of your business relationships.
That’s why we’ve created this simple guide on how to read, write, improve and review a legal contract. It will walk you through all the essential elements of an effective contract, including:
- What is a business contract
- What should be included in every commercial contract
- How your contract attorney should draft a proposal
- What questions do you need to ask from contract attorneys before signing on the dotted line
We share you all the essential details to know for creating legally binding business contracts or agreements that will help your company or employment stay legally compliant, risk-free, and successful.
What Is a Business Contract?
A legal contract is a legally-binding set of agreement between two or more parties. It can be used to formalize the relationship between parties, and it’s often used for business purposes. Business contracts are often used for things like:
- buying or selling goods and services
- hiring employees
- renting property
- agreeing on terms in an arrangement involving multiple parties. These parties don’t want to risk not following through with their obligations. Especially if they have to rely on verbal agreements instead of written ones.
That’s because these commercial contracts will spell out expectations and responsibilities. They also protect both parties involved in the relationship from unforeseen circumstances that might arise. Without a contract, you may find yourself in court. And that’s just over something as simple as a missed payment. Worse, you get penalties from improper government tax filing or an unpaid invoice.
But it’s not just about protecting yourself—it’s also about protecting your clients, who are probably depending on you to do the work they hired you for, but who may not be aware of how much risk they’re taking by not having a business contract in place
Why Are Business Contracts Important?
When you educate yourself and your clients on why contracts are important, both of you mitigate risk. This includes education on how they work, and what kinds of contracts exist. All of this helps you make informed decisions about how to further the business relationship harmoniously and lawsuit-free. This is why crafting a rock-solid contract is so important.
However, some businesses may not have the resources to hire an in-house legal team to draft their legal contracts. It doesn’t help that most business contracts are so full of legalese! The average contract is about 25 pages long . Worse, it contains about 35,000 words—that’s more than half the length of War and Peace.
Contracts can be used in personal relationships, too. One good example is when you’re going into business with someone else as partners. This relationship requires you to share ownership of your company (or any other type of venture). You’ll likely need some kind of written contract outlining how much each partner owns. This includes what responsibilities each party has during their partnership period.
What Are the 4 Types of Business Contracts?
When you’re a business owner, legal contracts are your lifeblood. Without them, you’ll be left to fend for yourself in the wild world of business—a place where nothing is free and every deal is a contract. But just because they’re important doesn’t mean you need to spend a ton of time and energy on them. At least not if you know what types of business contracts are out there and what they do.
Crafting the right legal contract from a trustworthy contract lawyer can make or break your business. That’s why it’s important to know the four types of business agreements that are out there: written, verbal, standard, and period contracts. Each type of agreement in business law has its own advantages and disadvantages, so it’s important to understand what they are before you decide which one is right for you.
Types of Contracts
- Written Contracts
Written contracts are formal agreements that have been written down on paper with the help of a contract attorney and signed by two or more parties. In a written contract, there should be no room for confusion about what is expected from each party.
These mutual agreements should indicate what both parties promise to do or not do at some point in time—and they’re mutually dependent on each other fulfilling their part of the deal.
- Verbal Contracts
These are oral agreements that have been made between two or more parties verbally but not put in writing. Verbal contracts can be difficult to prove and enforce. So it’s important for both parties to agree on the terms before making an agreement.
- Standard Contracts
These are pre-written documents that can commonly be seen among industry associations or trade groups. They provide a template for making agreements that meet certain criteria established by the business group. Such documents can contain “fine print” details written by a reliable business contract lawyer. Ensure that you have a copy of these contracts with you so you can always refer to them when there’s a dispute.
- Period Contracts
A period contract is a type of contract that ends after a specified time period. It usually refers to a business-to-business relationship and is often used for the sale of goods and services. This legal contract is typically used when the buyer and seller expect to continue their relationship after the contract expires. The buyer might purchase equipment from the seller, for example, with the intention of purchasing additional equipment throughout the year.
If you want to enter into a period contract, make sure you understand what to expect after the agreement expires. You also need to be aware that some states have laws prohibiting or limiting certain types of period contracts.
What Is the Most Common of All Business Contracts?
The most common contract made by contract attorneys is the sales contract. This type of contract may be either an agreement to sell goods or services. Other common contracts include employment agreements; nondisclosure agreements (NDAs); noncompete agreements; consulting agreements; letters of intent; confidentiality agreements; and lease agreements.
What Business Contracts Does a Small Business Need?
The answer depends on the type of business you run. For example, a small construction company will likely require a set of contracts from contract lawyers for each project it undertakes. A freelance web designer might need contracts with his or her clients to ensure that both sides understand their respective obligations and rights in the relationship.
And if you’re running an online store, it’s important to have clear agreements with vendors who supply your inventory and other items so that there are no misunderstandings later on about what you agreed on. Whatever the type, contracts can help protect a small business from potential lawsuits or other conflicts by clearly outlining expectations and responsibilities within professional relationships between various parties.
What Is An Example of A Business Contract?
Business contracts are a way to formalize an agreement between two parties. An example of a business contract might be one that formalizes a long-term agreement between a company and its employees, or it could be one that establishes the terms of an agreement between two companies.
In the business world, contracts are used by contract attorneys to ensure that both parties involved in an agreement are protected.
Who Benefits From Business Contracts?
- Businesses: Contracts are essential for any business that wants to protect its assets, ensure compliance with regulations, or avoid litigation. They also serve as a matter of record for all parties involved in an agreement
- Customers/Employees: Customers and employees benefit from contracts because it protects them from liability and sets out the terms of their relationship with the company.
Business contracts can benefit businesses and individuals in avoiding disputes and running their businesses more efficiently by ensuring that everyone knows their obligations and responsibilities. By creating a contract between yourself and another party made by a reliable contract lawyer, you can protect yourself from fraud and make sure that what you pay for is what you get.
In short: contracts help businesses run smoothly.
What Are the Key Parts of Business Contracts?
When you sign a business contract, you are entering into an agreement with another party. The purpose of the contract is to agree on the terms and conditions that apply to your relationship for a given period of time. A good business contract should include the following elements:
- Parties involved in the agreement (namely who’s providing what)
- Services or products being provided (including details about how long these will last)
- Payment terms (and if any discounts apply)
The parties involved in the contract may include you and your employees, or you and your clients or vendors, depending on how your contract attorney drafts it. You can also be both parties in a legal sense, as when one company sells goods or services to another company.
There are generally three elements required for all contracts: intentionality (the parties must intend to enter into an agreement), mutuality (each party must have something of value at stake), and consideration (both sides need some sort of incentive to perform their obligations under the contract).
Create Rock-solid Business Contracts Now
In conclusion, we have given you here all the tools to craft or acquire a rock-solid business contract to protect your business interests. We hope that this article will help you and your venture in crafting your own business agreements, as well as understanding how they work.
To sum it up, contracts are legally enforceable agreements between two parties that spell out their rights and responsibilities under certain conditions. This guide highlights the importance of getting the best legal representation to draft the business contracts that prioritize you. Josiah Young is the contract attorney you need for such representation.
The Law Office of Josiah Young, P.C. provides a range of legal contract review services to help individuals and businesses—from startups to multimillion businesses— solve problems related to business contracts, commercial leases, and other business agreements. Our goal is to help our clients find solutions that are both practical, and sustainable, and serves their ultimate bottom line. We believe that every case is unique, which means that we work hard to develop a solution that fits each client’s specific situation.
If you have any questions or you need a contract attorney to help in writing, negotiating, and maximizing your contracts that arise when you’re starting your business, we’d love to connect with you today!
Read the blog of josiahyounglaw.com for answers to more FAQs, such as:
- What is an example of a business contract in the field of entertainment?
- What are the three different business contracts in labor law?
- What are the 7 contracts I can use for my small business?
- What are the 10 types of contracts for my business?
- Can I write my own business contract?
- What are the 4 types of contracts in business law?
- What are the five basic contract types in the field of eCommerce?
- What are the 6 types of contracts I can use to avoid litigation?
- What is a simple contract in business contracts with employees?