The types of contract every business should know about

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Date: 25 February 2021

A smiling young businessman signs a contract

Running a business is a challenge but in order to help it achieve success, there are a number of things you should do from the beginning. Business contracts can vary from one company to the next but  understanding of the common types of business contracts will help ensure you are covered by the essential business contracts you need and that you draft them correctly.

That said, here are two types of contracts every business owner should know about.

The importance and benefits of business contracts

Contracts are legal documents that help protect your business. They also help portray a degree of business professionalism. When you present a contract, the person or company you're dealing will appreciate that the deal is being done in the right way. A properly drafted contract provides peace of mind, setting in stone the agreements and obligations that each party holds.

Regardless of how big or small your business is, the importance of business contracts cannot be ignored. A clear and well-drafted contract helps ensure that fewer mistakes or disputes in any business arrangement you've got in place.

From hiring new employees to purchase orders, the two main categories that contracts tend to fall under are general business contracts and sales-related contracts. If things were to go wrong, knowing you have an agreement in writing will relieve some of that pressure or worry you may have.

General business and employment contracts

Businesses draft up contracts on a daily basis for a variety of reasons. The general business contract bracket covered a wide range of contracts. Depending on what's required, there are a variety of topics that these contracts cover.

It's also worth understanding the difference between unilateral vs bilateral contract - especially if you have to navigate a complex collaboration or partnership with another individual or company.

There are many agreements that will feature in general business contracts, so it's worth knowing what these are so that you're using the right ones.

Sales agreements

Drawing up standard terms of trade with customers can save you a world of problems if something goes wrong with a customer. However, reassuring it is to have an agreement in writing, you need to understand that a contract exists the moment an offer is made and accepted. Unless your terms of trade have been agreed before the offer is made, they will not apply. Equally, if a salesperson promises something during negotiations it is likely to become legally binding if the customer is relying on it. This applies whether the salesperson agreed it in writing or not.

To be on the safe side, agree your terms of trade before an offer is made and accepted. And remember, do not promise something verbally that you cannot deliver later. If the customer is relying on it, you could be in breach of contract even if it's not in writing.

Partnership agreements

A partnership agreement details the relationship between two parties. Whether that's one other party or you're an agreement you sent out to many individuals or businesses you work with on a partnership basis. It outlines the individual obligations and contributions that each party is making.

This agreement can be really important when it comes to collaborations. You want to make sure both parties are complying with their side of the deal and that you can hold them accountable if they don't.

Nondisclosure agreements

There may be times when you have a high-profile client or information that you want to keep confidential and don't want to share beyond the parties directly involved. A nondisclosure agreement gives the business owner the right to take actions against the other party, should they breach the nondisclosure agreement. Nondisclosure agreements are usually used when the information, opportunity or deal itself is very lucrative and one or both parties want to protect it from being taken, disclosed or used.

Leasing property or equipment

Some business contracts it might involve leases of property or equipment. Essentially, if you're allowing someone to use your property or equipment for an extended amount of time, you'll want to have this type of contract and agreement in place.

This contract will detail specific agreements such as ownership, the length of the lease, usage limits as well as any payments that need to be made which may include a deposit and maintenance charges. It's a good way to make sure your property is protected, whatever it is you're leasing out.

General employment contracts

Employment contracts also fall into the general business contracts category. Regardless of whether you are taking on your first employee or the hundredth, it's important to make sure the contract is up to date, specific to the employee and the role they will be fulfilling and the company's current employment terms and conditions.

An employment contract details the relationship between you as the employer and the employee. The contract may include the duration of the contract, whether it's fixed-term, permanent, full or part-time. It should also detail the compensation that they receive as well as the benefits for doing the job.

It's also going to include the grounds for disciplinary and grievance procedures, how the contract can be terminated and any other areas that might be specific to your company. For example, you might have to outline who has ownership of certain work that's produced while the employee works at the company.

Independent contractors

When you outsource individual contractors that don't work for your company, the details of your partnership are going to be different from those who are employees.

With that being said, it's important to be outline exactly what you're expecting, what rights and ownership you have, and the contractor's rights and obligations.

Indemnity agreements

These help protect a business or individual's when working with another party. A person may be asked to sign an indemnity contract in order to prevent any lawsuits from taking place, should there be damages that result from a specific agreement.

It's a form of insurance for compensation wherever there are damages or losses to one of the parties.

Copyright 2021. Article was made possible by site supporter Arianna Lupi, SEO Executive at Skale.

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