Common Types of Business Contracts

If you're a business owner, you will have to deal with different types of business contracts. Depending on your business, this could be anything from a bill of sale to a lease to an employment agreement. Here are some of the most common types of business contracts.

General Business Contracts

General business contracts cover matters related to how your business is structured, relationships among co-owners, and general business matters and relationships with third parties. Some of the most common ones include:

• Partnership agreement. A partnership agreement spells out the relationship between business partners, as well as their individual obligations and contributions to the business.
• Indemnity agreement. The purpose of an indemnification agreement, also known as a hold harmless agreement, is to transfer the risk of loss from one party to another. For example, a car rental business typically requires drivers to sign an indemnity agreement protecting the car rental company against any lawsuits or damages if the driver gets into an accident while driving the rental car.
• Property or equipment lease. These contracts spell out the terms and conditions of a lease for a building or piece of equipment, including monthly payment, deposits, terms, maintenance agreements, and other related items.
• Joint venture agreement. These agreements define the relationship and obligations between parties who want to enter into a joint business venture together.
• Licensing agreement. A licensing agreement sets forth the terms under which one party can use property owned by another party, including intellectual property such as patents and trademarks and copyrights for written or visual material.
• Buy-sell agreement. A buy-sell agreement, also known as a buyout agreement, defines what happens to a business owner’s share of a business when that owner dies or leaves the business. Usually these agreements give the remaining owners the right to buy the departing owner’s share.

Sales Contracts

Sales contracts are legal agreements that cover how property, goods, and services are purchased and sold, and lay out the legal framework for transferring title, if necessary. Some common sales contracts include:

• Bill of sale. A bill of sale transfers title to a piece of property from one party to another in exchange for money. It is commonly used to document the sale of more valuable items like vehicles, boats, or artwork but can also be used for less valuable personal property items like furniture. See Avvo's bill of sale form for more information.
• Purchase order. A purchase order is a legally binding document submitted by a buyer to a seller that commits the buyer to purchase the goods or services as specified in the purchase order.
• Security agreement. A security agreement pledges an asset or piece of property as collateral to secure a loan. In the event of a default, the asset is forfeited to the lender.

Employment Contracts

Every business with employees should carefully document every aspect of the employment relationship. Some examples of commonly used employment contracts include:

• General employment contract. An employment contract spells out the relationship between you and your employee, including work duration, compensation, benefits, grounds for termination, and any other issues that relate to your specific business such as ownership of work produced.
• Noncompete agreement. A noncompete agreement specifies a period of time in which an employee is prohibited from competing with your business once he or she leaves your company.
• Independent contractor agreement. This agreement is used by businesses to hire someone to provide a particular service or to work on a particular project. It lays out the terms and conditions for work being provided and should establish a relationship that is different from an employment relationship for IRS purposes.

Every business owner will need to understand and deal with business contracts. In some cases, these contracts may be self-explanatory and easy to understand. But if you’re unsure about a contract or what you may need for your particular business, you should consult with an attorney experienced in small business law.