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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- Utah
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- Virginia
- Washington
- West Virginia
- Wisconsin
- Wyoming
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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Meet some of our Business Contract Lawyers
Max K.
I am a business attorney and former in-house corporate attorney with more than a decade of experience helping companies navigate contracts, commercial relationships, day-to-day operations, and disputes. My practice includes drafting, reviewing, and negotiating commercial agreements, licenses, leases, vendor and service agreements, and other business arrangements. Licensed in Nevada, California, New York, and Texas, I also hold an Executive MBA. My goal is to serve as practical, long-term outside counsel to small businesses and entrepreneurs that value responsiveness, sound judgment, and advice grounded in commercial realities - not merely technical legal answers. I handle disputes when necessary, but much of the value I bring lies in identifying issues early, preserving business relationships, and preventing avoidable conflicts. I do not bill separately for routine phone calls. I want clients to feel comfortable calling before a small concern becomes an expensive problem, and I am always happy to have an initial conversation to see if the fit is right for you. www.linkedin.com/in/maxkelner
"This was my 1st time having to consult with a legal expert about anything and Max made the process easy and stress-free."
O.T. W.
Hi, my name is O.T. and I own The Walker Collective, a law firm that caters to the contractual, intellectual property, and business formation needs of creative entrepreneurs and small business owners. I am licensed to practice in Maryland and New York.
"O.T was very personable, knowledgable, and resourceful. Would definitely use her again!"
Melissa G.
Melissa D. Goolsarran Ramnauth, Esq. is an experienced trial-winning trademark and business attorney. She has represented large businesses in commercial litigation cases. She now represents consumers and small businesses regarding federal trademarks, contracts, and more. Her extensive litigation knowledge allows her to prepare strong trademark applications and contracts to minimize the risk of future lawsuits.
Bryan B.
Experienced attorney and tax analyst with a history of working in the government and private industry. Skilled in Public Speaking, Contract Law, Corporate Governance, and Contract Negotiation. Strong professional graduate from Penn State Law.
"I needed someone to review a contract on short notice - Bryan was helpful, quick and affordable!"
Angela Y.
NJ and NY corporate contract lawyer and founder of a firm specializing in helping entrepreneurs. With a background in law firms, technology, and world class corporate departments, I've handled contracts and negotiations for everything from commercial leases and one-off sales agreements, to multi-million dollar asset sales. I love taking a customer-focused and business-minded approach to helping my clients achieve their goals. Other information: learning to surf, lover of travel, and one-time marathoner (NYC 2018) yulawlegal.com
"Top notch efficiency, response time, industry knowledge, communication"
Jason H.
Jason has been providing legal insight and business expertise since 2001. He is admitted to both the Virginia Bar and the Texas State Bar, and also proud of his membership to the Fellowship of Ministers and Churches. Having served many people, companies and organizations with legal and business needs, his peers and clients know him to be a high-performing and skilled attorney who genuinely cares about his clients. In addition to being a trusted legal advisor, he is a keen business advisor for executive leadership and senior leadership teams on corporate legal and regulatory matters. His personal mission is to take a genuine interest in his clients, and serve as a primary resource to them.
"Jason was outstanding! Professional and Proactive. I was very happy with the services he provided."
February 24, 2023
Candace M.
For over 20 years, as an attorney and real estate broker, Candace has used her passion for business and real estate to help her clients succeed as business owners, entrepreneurs Realtors, and real estate investors. She and her team go above and beyond to simplify and solve those issues which trouble her clients. From the simple to the complex, she is ready to help. Her experience includes, Real Estate law, Contracts, Business Formation, Business Operating AGreements and Entrepreneurial counseling.
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"Ralph is knowledgeable, responsive, and truly cares about protecting small business owners. I feel much more confident taking on clients knowing my contracts are solid. Thank you!"
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"Allen was outstanding. He reviewed our full set of business agreements and operating procedures for a startup in the short-term rental space. His redlines were thorough and practical. He didn't just flag risks, he explained the reasoning behind each change and proposed workable language. He also proactively caught compliance issues we would have missed entirely. He was responsive, stayed on scope and budget, and clearly understands business law. We'll definitely be back for future legal work."
Reply From Allen L.
Thank you for the thoughtful review, and for trusting me with your full set of business agreements. I'm glad the redlines and the reasoning behind them were useful, and that the compliance issues got caught before they became a problem. I look forward to working with you again on future matters. Allen
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Thank you so much -- glad I could help with the business application and agreement review, and I appreciate you taking the time to write this. -Allen
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What should I do? How should I proceed this situation.
Hello, I sign a sale contract to buy a dog with a purchase of travel cost. The sales person received a payment and started the process to ship the puppy. But it came a hiccup when the puppy to small to be in a crate that was not secure. The airport was trying to charge 1000 to 1500 which the sales person did not have and wanted me to pay it. I could not pay it and the sales person could not supply the crates from a local store. So we made a agreement he would pick the dog up from the airport and refund the money back. It has been 6 hours and the sales person did not refunded and now I can not get in touch with him. What should I do
Jane C.
Do you have a written agreement? Does this agreement deal with what happens in the event that either party breaches the agreement? How did you pay? If you paid by credit card, you can call and cancel payment.
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Washington
Business contract with non-disclosure?
I am a small business owner looking to enter into a contract with another party. I am concerned about protecting my intellectual property and proprietary information that I will be sharing with the other party. Therefore, I am looking for advice on how to draft a non-disclosure agreement that will adequately protect my interests.
Merry K.
Creating a Non-Disclosure Agreement (NDA) is a crucial step to protect your intellectual property and proprietary information when entering into a contract with another party. Here's a step-by-step guide on how to draft an NDA that will help safeguard your interests: Understand Your Needs: Clearly identify what specific information you want to protect. This could include trade secrets, business plans, customer lists, product designs, or any other sensitive information. Consult an Attorney: It's highly recommended to consult with an attorney who specializes in intellectual property or contract law. They can provide you with tailored advice and ensure your NDA complies with applicable laws in your jurisdiction. Basic NDA Structure: Title: Start with a clear title such as "Non-Disclosure Agreement" or "Confidentiality Agreement." Parties: Identify the parties involved, including your business and the other party. Recitals or Purpose: Include a brief statement explaining the purpose of the agreement, such as why the parties are entering into it. Definition of Confidential Information: Define what constitutes confidential information. Be as specific as possible to leave no room for ambiguity. Obligations of the Receiving Party: Clearly outline the receiving party's obligations, including: The duty to keep the information confidential. The prohibition on disclosing, sharing, or using the information for any purpose other than the specified one. The requirement to use reasonable care to protect the information. Duration of Confidentiality: Specify the duration for which the information must remain confidential. This could be for a set number of years or until a specific event occurs. Exclusions from Confidential Information: Clearly list any information that is not considered confidential. This could include information that was already public, independently developed by the receiving party, or disclosed with your written consent. Consequences of Breach: Describe the consequences of a breach of the NDA, such as injunctive relief, monetary damages, or both. Jurisdiction and Governing Law: Specify the jurisdiction where disputes will be resolved and the governing law that will apply. Miscellaneous Provisions: Include any other necessary clauses, such as dispute resolution methods, severability, and the entire agreement clause (which states that the NDA constitutes the entire agreement between the parties). Execution and Signatures: Provide spaces for the signatures of both parties, along with their printed names and dates. Review and Negotiation: Allow both parties to review and negotiate the terms. Be prepared for some back-and-forth discussions before reaching a final agreement. Legal Counsel Review: Before finalizing and signing the NDA, have your attorney review it to ensure it meets your specific needs and is legally enforceable. Remember that NDA templates are widely available, but they may not fully address your unique situation. It's essential to tailor the agreement to your specific needs and consult with legal professionals to ensure it adequately protects your intellectual property and proprietary information. Additionally, you should make sure that the other party understands the terms and willingly agrees to them before proceeding with any confidential discussions or transactions.
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I am a freelancer looking to take on temporary projects. I am currently in the process of creating a business contract for these projects, but I am unsure of what to include in the contract or what rights and responsibilities I should include for both parties. I would like to understand the legal implications of such a contract and ensure that I am adequately protected.
Eddy M.
You should have a simple template that can be used for multiple projects. The key terms to include are: - Contract period - Your specific responsibilities and deliverables - Fees and payment terms - Who owns the work - Non-disclosure clauses - Termination rights (for both parties) if things don't go well - Indemnification (i.e. if something goes wrong, who is responsible for what) This can be a relatively simple contract that can be revised quickly and for multiple clients. One thing to note is that companies will typically prefer to use their own vendor contracts, so you might end up having to review and use their contract instead of yours.
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Washington
Witnessing a business contract: required?
I am a small business owner who is considering signing a business contract with another party. I am aware that contracts are legally binding documents, and I want to ensure that I am making the best decision for my business. I am wondering if it is necessary to have a witness present when signing the contract, and what the implications of not having a witness present would be.
Merry K.
It is not necessary to have a witness(es) witness the signing of a contract, but it can be helpful if you later wanted to content that you were coerced into signing or agreeing to terms that you protested. However, if you have such concerns, you should not sign any contract. The advantage of having a notary witness a signing is that a WA State notary will check the legal indentification of all signatories to a contract and ensure they are who they say they are; appear to be competent to understand what they're signing; etc.
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Will be happy to call and discuss. I have a business law matter I need assistance with, I was recommended to your firm by the bar association. Kindly confirm if you are available to handle such matters. Thank you, Paul Gam.
Donya G.
Hi Paul, It’s great to hear that we were recommended. I would be happy to help with your business matter. I am a business attorney with over 20 years of legal and business experience. I generally serve as General Counsel to small business clients end work with them on resolving their issues. When can you get on a call? We can schedule a free 15 min consultation to discuss. You can contact me on Contracts Counsel. I have some time today, Friday February 18th and also Monday or Tuesday next week. I look forward to hearing from and working with you. Donya Gordon
Quick, user friendly and one of the better ways I've come across to get ahold of lawyers willing to take new clients.
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exculpatory clause/hold harmless agreement
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