What are Business Contracts?

Contracts are integral to the smooth functioning of any business. No matter what type of goods or services you provide, or what the size of your business is, you will inevitably come across or have need for a Contract. These documents are what allow you to get things done with legal backing and protection, whether it is hiring an employee, making arrangements with a distributor, or solidifying a deal with a valuable client. Even getting your business off the ground will require one or more Business Contracts.

The following are some of the Contracts you must familiarize yourself with, as they will be needed for your business to succeed, grow, and avoid costly liability. They fall into three broad categories: General Business, Transactional, and Employment.

General Business Contracts

These Contracts are responsible for laying the groundwork of how your business is structured (Partnership, Corporation, etc.) and the protections and obligations pertaining to its various stakeholders.

Partnership Agreement — Whenever two or more individuals want to come together to own and operate a business, they should sign this Contract to clearly lay out their relationship with one another and what sort of obligations, contributions, and duties they have towards the business. This will minimize the likelihood of any disputes or disagreements relating to each partner’s role in the business. Such an agreement should also include language spelling out how any such dispute should be resolved.

Indemnity Agreement — This is a Contract wherein one party agrees to indemnify, or “hold harmless”, another person for any damages resulting from a specific agreement. It basically transfers the risk from one party to another. For example, a landlord may have an Indemnity Clause in their Lease Agreement in which the tenant agrees not to hold the landlord responsible for damages to their apartment resulting from the tenant’s actions.

Non-Disclosure Agreement — This is crucial to protecting the vital intellectual property and trade secrets of a business, requiring the signatory not to share proprietary or confidential information about the business.

Property / Equipment Lease — Many businesses lease their physical space and/or business-related items from another party. This sort of Contract will establish the terms and conditions governing the leasing of these assets, including the time period, monthly payment, maintenance obligations, and so on.

Transactional Contracts

Businesses are transactional by nature, whether it is selling goods and services to clients, or purchasing certain equipment, tools, or real property for the business. This class of Contract governs these exchanges and transactions with a legal framework.

Bill of Sale — This legal document transfers title, or legal ownership, of a piece of property from one party to another. It also provides proof that a legal agreement was established about the purchase price and terms of the sale.

Purchase Order — This legally binding agreement will commit one party to purchase an item at a mutually agreed price and quantity, with specific details about the date of delivery and payment. Depending on the nature of your business, you may find yourself at both ends of this type of Contract.

Security Agreement — There will likely come a time when your business must take out a loan to expand, or may in turn loan something to another party. A Security Agreement is when a party pledges an asset (such as a piece of property) as collateral to secure a loan. If the borrower defaults, this asset will be forfeited to the lender in lieu of payment.

Employment Contracts

Not only will you need personnel to help run your business, but you must protect yourself from the ever-present possibility of legal disputes or bad faith behavior from employees.

General Employment Contract — This type of Contract establishes the relationship between your business and your employee, including the duration of their work period, the compensation or benefits they will receive, and the basis for termination. It can also include matters specific to your type of business, such as who owns the work that is produced or other obligations the employee will have to abide by to remain employed.

Non-Compete Agreement — Often a component of a General Employment Contract, this agreement obligates an employee not to compete with your business for a certain period of time after they no longer work for you.

Independent Contractor Agreement — Aside from formal employees, you may need to hire a person or business outside the company to perform a particular project or service. This agreement identifies who you are hiring as an independent contract distinct from your employees while laying out the terms and conditions of their specific work.