Table of Contents
- Download a Business Contact Template
- The Basics: What is a Business Contract?
- The Consequences of Not Having a Mutual NDA
- The Most Common Uses
- What Should Be Included?
- FAQ
1. Download a Business Contract Template
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2. The Basics: What is a Business Contract?
A business contract is an agreement in which each party agrees to an exchange, typically involving money, goods, or services. Business contracts protect both buyers and sellers, by reducing agreements to writing. The contract can be as long or short as necessary in order to cover the important details of the contract.
Contracts require the following:
- Offer;
- Acceptance;
- Consideration;
- A meeting of the minds
Contracts are legally binding on the parties who sign them. In business, contracts are typically either sales agreements, for the sale of goods, or service agreements, for the sale of services.
An offer is the basis for the contract. For example, “I will provide cleaning services for your business at $40 an hour” is an offer. When the business owner says, in effect, “I will pay $40 an hour for your cleaning services” that is an acceptance of the offer.
Consideration is the exchange, in this case, of money for services. Both parties must agree to the terms of the offer and acceptance. If the business owner says, instead, “I will pay you $35 an hour for your cleaning service,” this is a counter offer. In this example, there is not yet a meeting of the minds, and therefore no contract.
Reducing agreements to writing is not always required for a legally binding business contract, however, when agreements are not reduced to writing, some confusion may occur. Consequently, it is best to write out the agreement.
Services Agreements
Service agreements are business contracts used when one is selling a service. The service agreement provides necessary details, such as the service provided, the timeline in which the service will be provided, the cost of the service, when payment is due, and other details necessary to cover the agreement between the parties.
If you are not sure if you are selling goods or services, consider your product. Can you see it, taste it, smell it, or touch it? Can you ship it? If so, you are selling “goods,” so should use a sales agreement. If, on the other hand, your contract requires performance, such as cleaning, snow removal, or selling a house, you are selling “services,” and should use a service agreement.
Sales Agreements
When one is engaged in selling goods, a business contract called a sales agreement is used. The sales agreement details the agreement between the parties. It likely includes the item sold, the purchase price for the item, and the number of items the buyer will purchase. It may also include the date the items will be delivered, how they will be delivered, and when payment is due.
3. The Consequences of Not Having One
When you have a business contract reduced to writing, you have a clear road map detailing what you and the other party to the contract agreed to. Because contracts are legally binding, if the other party fails to meet their obligations, you have the right to legal recourse.
Imagine, for example, your business sells cleaning services. You contract with a business to clean their building nightly, at a rate of $40 an hour per employee. You provide two employees, who take 2 hours to complete the job. In your mind, you are owed $160 per night.
But then the business owner recalls the $40 per hour part of the agreement, and disputes that the agreement was for $40 per employee. Rather, the business owner maintains they own you $80. Without a written service agreement, you may have a more difficult time proving your version of events was correct.
Similarly, if you engage in an agreement to purchase goods, such as janitorial supplies for your business, without a written agreement, you may find yourself in a position you didn’t anticipate. For example, if you order cleaning supplies, at a cost of $250. Based on your business plan and current clientele, you anticipate these supplies will last you three months.
However, one month after the first order, a second shipment of cleaning supplies arrives. The seller of the supplies insists you agreed to a monthly purchase of $250 in cleaning supplies. You recall an agreement to order supplies on an as needed basis. Without a written sales agreement, the details of the sale remain would more likely remain in dispute.
The absence of written service agreements and sales agreements has led to many disagreements. This can lead to lost business and ill will. In some cases, if the contract is not in writing, it is not enforceable – even if there is no dispute over the terms. Most states have adopted the Uniform Commercial Code (UCC) which requires all contracts must be in writing, if they contract lasts more than one year.
Lawyers often say oral contracts aren’t worth the paper they are written on. This is because proving the terms of the agreement, absent a written document, is nearly impossible.
4. The Most Common Uses
Business contracts are most commonly used any time a business owner agrees to provide a service or good to another, or any time a business owner agrees to pay for a service or good. In other words, if money is being exchanged, a service agreement or sales agreement is the best practice.
Business owners use sales agreements when selling their products. They also use sales agreements when purchasing supplies to create their product. Finally, sales agreements are used when purchasing supplies for the office, from cleaning supplies, to lunch for the staff, to office supplies.
Business owners use service agreements when selling their services. They also use service agreements when purchasing services, from office cleaning, to instrument and machine maintenance, to car services.
Don’t forget to use contracts both when you are the seller and when you are the buyer. Contracts protect you when selling your goods and services, as well as when you purchase goods and services for your business.
5. What Should Be Included?
When drafting a business contract, include every detail relevant to the contract. If it is not written into the contract, it is not considered part of the contract. When writing a contract, at a minimum, the following should be included:
| What needs to be included | Explanation |
|---|---|
| Offer | This includes details about what is being purchased or sold. For example: Party A will provide 36 widgets, at $3.00 per widget. Or Party B will provide office cleaning services, at $40 per hour per cleaner. |
| Acceptance | If the other party agrees to the offer, they indicate their agreement by signing the contract. |
| Consideration | Consideration is something of value. In most cases, it is money. However, it doesn’t have to be money. It could be an exchange of services, such as “Party A agrees to represent Party B in a divorce proceeding. In exchange, Party A will provide cleaning services 2 nights per week, for 6 months. |
| Details pertaining to the offer | Details may include any or all of the following: · Date of delivery; · Condition of the goods; · Date payment is due; · Form of the payment; · Provisions for what happens if the goods or services cannot be delivered as promised due to an act of God; · Re-ordering provisions; and · The expiration date of the contract. |
| Signatures | Both parties to the contract must sign the contract, demonstrating agreement to the terms. |
6. FAQ
Click on any question to expand the answer.
General Questions
You cannot force someone to sign a contract. However, you can refuse to do business with a person who won’t sign a contract. Losing your business might be the “nudge” they need to reconsider their position.
No. There are certain written contracts that are not enforceable. These include contracts signed by children, and contracts signed by people who are not mentally sound. Additionally, contracts which deal with illegalities are not enforceable. For example, you cannot engage in a legal contract to buy or sell illegal drugs.
Yes. Any time the terms of the agreement change, this should be documented in a new contract. The new contract should also make clear this contract replaces the old contract.
While it is a good idea to create a new contract, contract modifications reduced to writing on the old contract document may be legally sufficient. Make sure both parties agree with the language of the contract modification, and that both parties initial all contract changes. The initials indicate consent to the modifications.
A conditional business contract is a contract predicated on certain conditions occurring. For example, if you have a snow removal business, your service agreement may read, “Ace Snow Removal will remove snow from parking lots, walkways, and business entrances after snowfalls of two inches or more.” The contract is about snow removal. The condition is the presence of two inches of snow or more.
