Business Contract: Definition, Types, Key Terms

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:

1. Offer
2. Mutual consideration
3. Transaction details
4. Competency
5. 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.

Meet some lawyers on our platform

Dolan W.

1861 projects on CC

CC verified

View Profile

Daniel K.

CC verified

View Profile

Steven S.

98 projects on CC

CC verified

View Profile

Lori B.

390 projects on CC

CC verified

View Profile

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:

1. Creating a paper trail of the transaction or relationship
2. Preventing and mitigating conflicts and risks
3. Promoting organization compliance with documentation
4. Fostering a sense of communication and collaboration
5. Protecting the company’s values as a brand
6. Increasing efficiency throughout the entire company
7. Ensuring that people understand expectations
8. Safeguarding you from other’s liabilities
9. Making yourself an attractive entity with which to do business
10. 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:

1. Obtain as much relevant information about the transaction as possible
2. Start the negotiations with gatekeepers and decision-makers
3. Identify the parties to the contract correctly
4. Ensure that you put every provision and stipulation in writing
5. Do not use a template from another transaction
6. Write the contract in the simplest terms possible
7. Flesh out the payment terms and conditions in detail
8. Decide if you want to use courts or alternative dispute resolution
9. Determine which reasons you will accept a contract cancellation
10. Incorporate a non-disclosure clause to keep the relationship private
11. Make a note of the contract expiration date
12. 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.

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.