As any business attorney will tell you, contracts are a standard part of any business operation. If you’re a business owner, you will probably see countless agreements between partners, vendors, employees, insurance companies, banks, customers and the like. The truth is that contracts are a necessity for your business. Contracts outline each party’s rights, obligations and responsibilities. When properly negotiated, drafted and executed, contracts can help to avoid or shorten conflicts when things go wrong. Here is a list of common contracts business owners routinely sign:
- Purchase and Sale (can be for real property, personal property or services)
- Vendor or Supplier Agreements
- Confidentiality Agreement (also known as Nondisclosure Agreements or NDAs)
- Partnership Agreement
- Joint Venture agreement
- Personal Guarantee
- Indemnity Agreement
- Covenant Not To Sue
- Warranty and Liability Waivers
Business contracts usually are mutual agreements, meaning that all parties involved have a responsibility to uphold their end of the agreement. If a party fails to fulfill their contract requirements, the other party has the right to recover damages resulting from the breach. Contract disputes can end in litigation (especially when the contract is drafted by someone not experienced in business dealings), but imagine how much more difficult disputes are when there is no contract at all.
Every contract, whether it’s a distributor agreement, a simple bill or sale or a complex intellectual property licensing agreement, must comply with certain requirements in order to be valid:
- Consideration: A mutual contract requires an exchange of consideration (offering or exchanging something of value).
- Legality: Contracts that encourage or require illegal conduct are not enforceable (sorry to all mobsters and hit men).
- Offer and Acceptance: One party requests something from the other party. The other party must agree. If there is no offer and no acceptance, there’s no contract (in fact, there’s no agreement at all).
- Capability: The law specifies that all involved parties must be capable of understanding what they’re doing. Contracts with minors, mentally impaired persons or those tricked into signing a contract (for example, a contract in a foreign language) may not be enforceable.
- Mutual Assent: The parties must agree on the details, and all the important details should be included in the agreement.
Before signing on the dotted line, consider consulting with a qualified business lawyer. An ounce of prevention could save you thousands of dollars in legal fees later.