At some point in life, we all enter into different business ventures to get a 'reward' for our efforts in the end. What happens after toiling for days, months, or even years is that a single miscalculation may bring your whole venture crumbling like a house of cards. This might be because you lacked a legally binding agreement between you as the business owner and the other party or parties involved. This agreement is referred to as a contract, and if properly drafted, it can be enforced in a court of law that will protect you if a dispute arises.
There are four main types of contracts in business, namely: employment contract, sales contract, lease contract, and business contracts. They are discussed below in detail.
This governs the relationship between an employer and his employees. It includes what duties need to be performed, and at what time by the employee, and in return, the 'consideration' clearly spelled out that the employer will reward the employee. Under this agreement, there are different types of contracts, e.g.:
- Non-disclosure: This is where the employee is bound not to disclose any 'secrets' of the company, while in employment and even after leaving the same job, over a specified period.
- Non-compete: This is where the employee is bound not to engage in the same type of business as the one, where they are employed and even after a specified period, after leaving the employment.
This is one of the main types of contracts in business that is primarily used when there is a transfer of title from one party to another. They include:
- Purchase order: This is a commitment by one party to purchase an item or items at an agreed quantity and price and make payments, within an agreed time, after delivery of the same item or items.
- Collateral: This is a guarantee that a business owner assures the other party that in case of default, they may acquire the title to the same. Collateral can be a building, car, or any asset that the business owner owns.
- Bill of sale: This is a legally binding document that is used in confirmation of delivered goods, transfer of title from the seller to the buyer, and request for payment of the same at an earlier agreed price.
These types of contracts in business are mainly for rental properties and equipment. They fall into two categories, namely:
- Real/Commercial lease: This is an agreement for renting out office spaces or land. It involves agreement on who should bear the burden of doing improvements, repairs, and alterations, including the amount of rent to be paid as consideration (including mode of payment), how to use/not use the property, etc.
- Equipment lease: This includes renting of types of machinery and equipment and what is paid as consideration (including mode of payment).
This is one of the basic types of contracts in business mainly involves two or more different entities that have one common agenda. They pool their various resources together to achieve/penetrate a market that they would have been disadvantaged had they ventured on their own. These contracts could be the following:
- Partnership agreements: This is a written contract between two or more parties to carry out a joint venture. A binding partnership agreement can exist even without a written agreement, provided that the statutes governing the partnership are applied.
- Indemnity agreements: This is an agreement between two or more parties absolving one party from future liabilities in case of a lawsuit.
- Joint-ventures: This is an arrangement between two or more parties to pool together their resources to gain a common objective.
For the above different types of contracts, the following aspects of a contract need to be in place, to make it binding, before a court of law:
This is a form of intention that can be verbal or through writing, performing a specific duty for consideration if accepted. In this case, there are two or more parties involved: The offeror, who makes the initial intention and the offeree, and who is the recipient of the intention. It must be clearly stated and the mode of acceptance.
This is an expression made by the offeree to the terms set out by the offeror. It should be in the exact terms and conditions that the offeror expected when proposing the same. Some offers might be deemed accepted by performance or nonperformance of individual acts if this was stated in the initial offer. Most of these offers specify the mode of acceptance. If the approval is done in a different style, then it becomes null and cannot be enforced in a court of law. Being silent is not an assumption that the offer is accepted. An exception arises where two parties have had previous engagements.
This is an 'enticement' by one party to the other to agree to the terms of the offer. It may be in promissory or monetary form.
This binds the parties to the contract to perform their stipulated duty. One party cannot 'walk away' from the obligation without following laid down procedures of doing so. If they do, then the aggrieved party can seek legal redress in a court of law. The offer must clearly state the obligations of each party and ways of discharge from the same.
Any party entering a contract has to have a legal capacity to be held liable in case of any eventuality. When a party is not aware of the consequences of the said contract, then under the law, they are deemed to lack the mental capacity to form a binding agreement.
For a contract to be enforced in a court of law, there must be documentary evidence that shows that the parties were legally bound to perform their respective obligations. However, where there is a verbal contract, it can only be enforced in a court of law if they are equitable and reasonable, and there is documented evidence, which can be through email paper trail, etc. Always remember that if it’s not in writing and signed, then it can’t be enforced.
Finally, after understanding the mentioned types of contracts in business, you must be keen when placing the details of any agreement. Whenever you are in doubt or if you do not understand any of the legal jargon, it is always crucial to engage the services of a qualified attorney before appending your signature on the dotted lines. BestLegalChoice vets top contract attorneys who deal with different types of contracts in business. If you require the help of a diligent contract law attorney to safeguard and look out for your business’s interests, you can post your legal request here. We only accept a small percentage of lawyers who apply to our platform that must pass our due diligence process, or call (800) 390-3293, and we will be glad to assist you with any of your contract and business legal needs.
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