Business Contract: Definition, Types, Key Terms
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If you run a business, you will need to engage in the drafting, negotiating, and signing business contracts routinely. Business contracts encourage compliance, confidentiality, and cooperation between two parties in a transaction. You must utilize them regularly as a business owner or manager.
Unfortunately, poorly worded or written contracts may not serve their intended purpose, which can nullify the process in the first place. Instead of leaving your business exposed to liability, consider everything you need to know about a business contract by reading the article below.
What is a Business Contract?
Business contracts, also known as business agreements, are legally binding written agreements between two or more business parties. They are enforceable in a civil court of law if they follow specific contract laws and other enforceability factors. There are several business contract types that businesses need and may use daily during normal operations.
Becoming familiar with them can help you understand which documents and agreements you need to have in place to run a legally and financially healthy company.
Types of Business Contracts
The term “business contract” is a broad term that describes any legally binding document used to govern transactions in a business context. The contracts used will vary according to state, country, industry, and transaction type. However, some contracts are used more often than others.
Examples of a few business contracts include:
- Sale contract
- Service contract
- Employment contract
- Commercial lease
- Business partnership agreements
- Master services agreement
The sky is the limit when it comes to the common types of business contracts we regularly use today. Markets have also supported the regular use of digital contract signing and transmittal. However, you will want to make sure the method at which you are signing contracts digitally is compliant with eSignature laws.
Key Parts of a Business Contract
What makes a business contract, well, a business contract? While there are common provisions that you can find in every document, overarching principles and legal philosophies design them. Essentially, a business contract indicates that something of value was traded and that all parties agreed to the terms.
Key parts of a business contract include:
- Offer
- Mutual consideration
- Transaction details
- Competency
- Acceptance
When signing a business contract, it is only as good as the language it contains. If your business contracts do not have the critical parts described above, you will experience legal issues in a court of law should you or the other parties raise a dispute. Ensure that you incorporate the essential parts as well as the standard clauses found in business contracts.
Common Clauses in Business Contracts
Business contracts vary in terms according to the transaction, size, payment terms, and other elements. You can organize and manage these terms by breaking your business contracts up into common clauses. This strategy will ensure that your arrangements are precise and that all principals can quickly locate the information they need.
Common clauses in business contracts include:
- Arbitration clause
- Choice of law clause
- Confidentiality clause
- Definitions clause
- Indemnification clause
- Severability clause
- Warranties
A well-written business contract is essential to uphold the legality and enforceability of the above-referenced provisions. Small business law and business contracts go hand-in-hand, which means you need to support both of these components. Start with a clear purpose in mind when drafting your business contracts.
Visit ContractsCounsel’s Contract Clauses resource guide.
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Purpose of a Business Contract
The purpose of business contracts is to protect the legal rights of you and your company when engaging in business relationships and transactions. If you do not have a written agreement in place, you open your organization to a host of legal issues. Consider some critical reasons as to why you should make business contracts a part of your regular practice.
Reasons to use business contracts include:
- Creating a paper trail of the transaction or relationship
- Preventing and mitigating conflicts and risks
- Promoting organization compliance with documentation
- Fostering a sense of communication and collaboration
- Protecting the company’s values as a brand
- Increasing efficiency throughout the entire company
- Ensuring that people understand expectations
- Safeguarding you from other’s liabilities
- Making yourself an attractive entity with which to do business
- Offering proof of the business contract’s particulars
There is no question that business contracts serve vital purposes. If a legal question or dispute crops up, you will have a document that both of you signed regarding the terms and conditions of the transaction. It is harder to refute or deny proof when a judge or jury is staring at it.
If you have legal questions, visit ContractsCounsel’s Free Q&A Forum.
Avoid Oral Contracts
Lastly, avoid using oral contracts. While they are enforceable in many states, disputes generally turn into a legal fight involving your word against someone else’s. Written contracts are much easier to prove and it is always advisable to get contract terms in writing to avoid potential disputes.
Get your business contracts in writing so that they offer you the intended protections you need.
Image via Pexels by Christina Morillo
How To Write a Business Contract
While it may be rather tempting to download a contract template online, you will serve yourself and your company well by following through on the process more professionally by hiring a lawyer. Online templates can be recycled from other transactions that may or may not be legally binding or enforceable in your geographic location without customization. Keep in mind that a contract is only as good as the language and provisions it contains. There are some reputable online template services, but most transactions require customization to make sure the contract fits your purpose.
Follow these critical steps on how to write a business contract:
- Obtain as much relevant information about the transaction as possible
- Start the negotiations with gatekeepers and decision-makers
- Identify the parties to the contract correctly
- Ensure that you put every provision and stipulation in writing
- Do not use a template from another transaction
- Write the contract in the simplest terms possible
- Flesh out the payment terms and conditions in detail
- Decide if you want to use courts or alternative dispute resolution
- Determine which reasons you will accept a contract cancellation
- Incorporate a non-disclosure clause to keep the relationship private
- Make a note of the contract expiration date
- Provide signature and datelines with plenty of space
As you can infer, there are several steps that you may go through to achieve the best possible result for your business contracts. You are also likely to face some tough questions as crucial issues arise. Ensure that you get help with business contracts from a legal professional directly.
Here is another article on how to write a contract.
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Get Help with Business Contracts
If you need to get help with business contracts, start by speak with business contract lawyers. They can help you negotiate the terms and conditions of your deal by drafting a legal agreement that makes sense for your situation. When legal disputes arise, they can also stand by your side and mount a defense or offense against the allegations at hand.
Compliance Is Critical
Your business contract lawyers will also guarantee that they are compliant with your geographic region. Some states and countries require contracts to contain specific provisions for enforceability. Business contract lawyers will guide you through compliance measures as well.
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ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.
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Terence B.
Terry Brennan is an experienced corporate, intellectual property and emerging company transactions attorney who has been a partner at two national Wall Street law firms and a trusted corporate counsel. He focuses on providing practical, cost-efficient and creative legal advice to entrepreneurs, established enterprises and investors for business, corporate finance, intellectual property and technology transactions. As a partner at prominent law firms, Terry's work centered around financing, mergers and acquisitions, joint ventures, securities transactions, outsourcing and structuring of business entities to protect, license, finance and commercialize technology, manufacturing, digital media, intellectual property, entertainment and financial assets. As the General Counsel of IBAX Healthcare Systems, Terry was responsible for all legal and related business matters including health information systems licensing agreements, merger and acquisitions, product development and regulatory issues, contract administr
"Awesome lawyer! Very responsive and helpful with everything."
Don G.
Texas licensed attorney specializing for 22 years in Business and Contract law with a focus on construction law and business operations. My services include General Business Law Advisement; Contract Review and Drafting; Legal Research and Writing; Business Formation; Articles or Instructive Writing; and more. I am able to draft and review contracts, and have experience with, contract law and business formation in any state. For more insight into my skills and experience, please feel free to visit my LinkedIn profile or contact me with any questions.
"Don is very insightful, helpful and efficient. He had great communication with me throughout the project. I would definitely hire him again."
Sunnita B.
Experienced sports and entertainment attorney. I specialize in contracts, business formation, licensing, wage disputes, negotiations, and intellectual property.
"Sunnita was very prompt with clear revisions showing what needed to be updated and explaining why. Also, she made sure my documents weren't generalized, but fit Georgia's laws and are specific enough to hold up in court. All of my questions were answered and she stayed in communication with the message feature. I really appreciated that she didn't try to overcharge me for her service. I'll use her for my projects going forward, great experience."
Tim E.
I am a business attorney focused on providing practical, targeted legal services for small businesses, startups, contractors, consultants, and service providers. I help clients efficiently review, draft, and improve everyday business contracts, including service agreements, NDAs, independent contractor agreements, vendor contracts, commercial leases, and purchase documents. My approach is straightforward: identify the terms that matter, explain risks in plain English, and deliver clear, usable edits or drafts without unnecessary complexity. I regularly handle fixed-fee, quick-turnaround projects such as contract reviews, agreement drafting, and demand or termination letters. While I offer streamlined, project-based services for routine matters, I can also assist with broader business legal needs as they arise.
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I am Muhammad Yar Lak, a New York-licensed technology attorney with extensive experience advising startups, founders, growing businesses, established companies (including Fortune 100 clients), and individuals on the legal matters that shape how they operate, grow, and protect what they have built. My practice covers business relationships, operational and contractual risk, and corporate structure, including the formation and structuring of LLCs and corporations. I hold a law degree from Georgetown University Law Center and am admitted to practice in New York. I am also CIPP/US certified, reflecting my commitment to privacy and data as core concerns in modern business and technology law. I practice as a Senior Associate with Gogo & Moore, a technology-focused law firm with offices in Aspen, Atlanta, and New York. I have built my practice around the industries defining the next decade, including technology, fintech, artificial intelligence, blockchain and digital assets, and e-commerce, while also serving clients in healthcare, manufacturing, real estate, and entertainment. Wherever my clients are building, I am there. My approach is simple: good legal counsel should empower people, not slow them down. I work hard to understand what my clients are actually trying to accomplish and help them get there. If that sounds like the kind of lawyer you are looking for, I would be glad to connect.
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Brad T.
William Bradley Thomas, or Brad, is a seasoned attorney in South Carolina, offering expert counsel to both emerging and established businesses and individuals. His specialties encompass alcohol licensure, asset protection, business law, Counsel on Call Concierge Legal Service™, estate planning, NFA firearms trusts, legal research, and document review. Brad’s unique approach is informed by his rich experience and diverse background. Not only is he a devoted father to three daughters (Anna, Kate, and Jessica), but he also served as the assistant Oconee County, South Carolina attorney. A pioneer in the local industry, he co-founded Carolina Bauernhaus Brewery & Winery, the state’s first farmhouse brewery and winery. His other roles have included membership in the South Carolina Bar Association’s House of Delegates, a board member of the South Carolina Brewers Guild, and an affiliate member of the same organization. Moreover, Brad is a certified Design for Six Sigma (DFSS) Green Belt and has accumulated over a decade’s worth of experience conducting onsite audits and financial analyses on domestic and international secured credit transactions, totaling over $5 Billion across diverse industries. With such a comprehensive skill set, Brad can provide sound legal and business advice that can help you manage and expand your business operations effectively. He can assist with selecting and establishing the most appropriate legal entity for your company, securing and retaining federal and South Carolina alcohol licensure, securing company incentives, and drafting, reviewing, and negotiating favorable contracts. All these services are designed to minimize risk and maximize both earnings and tax savings. Brad also offers estate planning services. Recognizing that life’s ups and downs can sometimes distract from ensuring that your loved ones are well taken care of, Brad applies the same legal and business fundamentals to his estate planning practice. These services include the preparation of wills, NFA firearms trusts (gun trusts), power of attorneys, and advance directives. So when your day at the office is over, you can relax, knowing that your business is running smoothly and your family’s future is secure, thanks to a tailored estate plan. If you’re seeking a trusted ally to guide you in business and personal legal matters, contact Brad Thomas at bthomas@scattorneysatlaw.com or review his firms website at www.scattorneysatlaw.com and discover how he can help you confidently navigate and enjoy all aspects of your life!
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August 19, 2023
Richard P.
I’m passionate about IP, AI, privacy and business. Learning to code. Book some time to discuss how I can add value to your project. Hablo Español y português.
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Can a business contract be terminated if one party fails to fulfill their obligations?
I run a small business and recently entered into a contract with a supplier for the purchase of raw materials. However, the supplier has consistently failed to deliver the agreed-upon quantities of materials on time, causing significant delays in our production process. This has resulted in financial losses for my business. I would like to know if I have the right to terminate the contract due to the supplier's breach of their obligations, and what steps I need to take to do so in a legally appropriate manner.
Danny J.
In general, a business contract can be terminated if one party fails to fulfill their obligations, which is known as a material breach of contract. However, the specifics depend on several factors: 1. Contract terms: The agreement may include specific provisions for termination in case of breach. 2. Materiality of the breach: The failure must be significant enough to undermine the contract's purpose. 3. Notice and cure periods: Some contracts require giving the breaching party notice and an opportunity to rectify the situation. 4. Documented evidence: It's crucial to have clear documentation of the breach and its impact on your business. 5. Legal requirements: Proper procedures must be followed to terminate the contract legally. The situation you've described - consistent failure to deliver agreed-upon quantities on time, causing significant delays and financial losses - could potentially constitute a material breach. However, determining whether you have the right to terminate and the appropriate steps to take requires a thorough review of: - The specific contract terms - The extent and impact of the supplier's failures - Any communications between you and the supplier regarding these issues - Applicable state and federal laws Given the complexity of contract law and the potential consequences of improperly terminating a contract, it would be advisable to consult with a legal professional. They can review your specific situation, assess the strength of your position, and guide you through the appropriate steps to protect your business interests.
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