A business contract is an agreement between two parties to exchange services or goods of value. A business contract requires obligations from both parties and must be offered and accepted to be legally valid. Most businesses use contracts to ensure agreements are carried through. Business contracts cover a wide range of business dealings.

Types of business contracts

Business contracts may define how your business is financed, standardize how you buy and sell goods, set conditions for partnerships or franchises, and more. Some common business contracts fit the following categories:

Starting a business: Includes partnership contracts and some types of incorporation agreements.

Running a business: Includes sale and purchase contracts, joint venture agreements, service agreements, stock purchase agreements, and merger agreements.

Managing a business: Includes employment contracts, severance contracts, confidential and nondisclosure agreements, intellectual property contracts, independent contractor or consultancy agreements, and employee stock plans.

Financing a business: Includes loan agreements, credit agreements, and debt-equity exchange agreements.

Property: Includes property contracts, industrial lease agreements, tenancy agreement, construction contracts, and building contracts.

Contents of business contracts

Business contracts should be clearly labeled as contracts. They should be dated, with each party's name, business, and address or related identifying information.

The contract should give specific details about the goods or services and payment provided, including amounts and date and time of delivery. They may include deadlines for performance of the contract and expiration and renewal terms. It's a good idea for a business contract to specify liquidated damages (the amount of damages to be rewarded in case of a breach of contract). It may also contain on what grounds the contract may be terminated.

Most business contracts contain standard boilerplate clauses designed to protect the contracting parties. These clauses may protect against things like natural disasters, third-party assignments, the use of previous agreements, and high legal fees if a contract is breached.

Additional considerations about business contracts

Business contracts may be oral or written. Although both may be valid, oral contracts may be more difficult to prove. Generally, contracts involving the sale of real property or of goods and services valued at over $500 must be written.

Local, state, or federal laws dictate how some business contracts are written. It's important to consult a lawyer to make sure all applicable laws are observed.

Many business contract templates are available online. Business owners may use these forms or treat them as a starting point.

It's a good idea to run all business contracts by a lawyer. A lawyer can advise you of your rights and negotiate the terms of the contract to be in your best interest.

Additional resources:

About.com, Small Business Information: Essentials of Making a Business Contract

All Business: Common Business Contract Boilerplate Clauses