As a business owner, it’s important to understand the basics of contracts. After all, contracts are likely to be a big part of your business dealings, whether you’re hiring employees or working with vendors.
Unfortunately, many business owners don’t fully appreciate the importance of having a business lawyer handle their contracts. This can lead to problems down the road, so it’s important to educate yourself on the basics.
What is a Contract?
A contract is a legal agreement binding two or more people. It can be verbal or written, but it must be unambiguous to be enforceable. Contracts are typically used in business transactions, such as the sale of goods or services.
Four elements must be present for a contract to be valid: offer, acceptance, consideration, and intention to create legal relations.
- The offer is the proposal made by one party to another.
- Acceptance is the agreement by the offeree (the person to whom the offer is made) to enter into the contract.
- Consideration is what each party gives up to enter into the contract; it can be financial, property, or something else of value.
- Lastly, there must be an intention to create legal relations; that is, both parties must intend for the contract to be legally binding.
If one of these elements is missing, the contract may not be enforceable. For example, if there was no consideration given by either party, then there would be no way to enforce the contract if one party failed to uphold their end of the bargain.
Similarly, if there was no intention to create legal relations (such as in a social agreement), then courts would likely not intervene if one party did not fulfill their obligations under the contract.
Here is where the role of a business lawyer becomes pivotal. A business lawyer, also known as a corporate lawyer or attorney, ensures that everything done by the company is legal. This encompasses mergers, acquisitions, transactions, taxation, and intellectual properties. It is vital to hire a business lawyer with the legal nous to ensure none of these elements are missing. It is also important to note that contracts don’t always have to be in writing. They can also be verbal agreements. However, it’s generally advisable to have a written statement.
The Different Types of Contracts
There are four primary types of contracts that are commonly used in businesses. They are:
1. Service Contracts
Service contracts are agreements between businesses and service providers, such as consultants, independent contractors, or vendors. These contracts outline the terms of the service being provided, including the price, delivery method, and quality standards.
2. Employment Contracts
These contracts are agreements between an employer and staff. It outlines the terms of employment, including salary, benefits, job duties, and termination procedures.
3. Sales Contracts
Sales contracts are agreements between a business and a customer for the sale of goods or services. These contracts typically include pricing information, delivery methods, and terms of satisfaction.
4. Lease Contracts
Lease contracts are agreements between a landlord and tenant that outline the terms of the lease agreement, including rent amount, length of lease, and repair/maintenance responsibilities.
The Importance of Contracts
Contracts are important for many reasons. Some of these are:
1. Contracts Provide Clarity and Certainty
A contract provides clarity and certainty for both you and the other party involved. A contract can specify exactly what is expected of each side, which can help to avoid misunderstandings down the line. This can be particularly important if you are working with someone new or if there is potential for disagreement on key points.
2. Contracts Help Protect Your Interests
Contracts can help to protect your interests if something goes wrong. For example, if you are working with another company on a project and they fail to deliver on their part of the agreement, a contract can give you a legal basis to take action against them.
This could include claiming damages or terminating the agreement altogether. Without a contract in place, you may find it much harder to enforce your rights.
What is a Lawyer’s Retainer?
A lawyer’s retainer is a sum of money that is paid in advance to secure the lawyer’s services. The retainer is usually paid at the outset of a case and is used to cover the lawyer’s fees and expenses. Once the retainer is exhausted, the client may be required to pay additional funds to cover the continued cost of the business lawyer’s services.
What to Include in a Contract?
When drafting a contract, it is important to include all of the necessary terms and conditions to ensure that both parties are legally bound to the agreement. The following is a list of items that should be included in every contract:
1. Party Names and Contact Information
Be sure to include the full legal name and contact information (address, phone number, email address, etc.) of all parties involved in the contract.
2. Description of Services
A clear and concise description of the services to be provided should be included in the contract. This will help ensure that both parties are on the same page as to what is expected to be delivered.
3. Payment Terms
The payment terms should be laid out in the contract. These included when payments are due, how much is owed for each service, and what methods of payment are accepted.
4. Cancellation Policy
In case either party needs to cancel the contract for any reason, a cancellation policy should be included that outlines how this can be done and what type of notice is required.
Both parties will be required to sign the contract to make it legally binding. Be sure to also include the date next to each signature.
How to Negotiate a Contract?
As a business owner, it’s important to know how to negotiate a contract. After all, contracts are the foundation of any business relationship.
The first step in negotiating a contract is to clearly define the terms of the agreement. What exactly are you agreeing to? What are the consequences if either party doesn’t uphold their end of the bargain? Once you have a clear understanding of the terms, you can begin to negotiate.
It’s important to keep in mind that both parties need to come away from the negotiation feeling like they’ve gotten something out of it. With that in mind, be prepared to compromise. Don’t be afraid to give a little bit on your end to get something that you want from the other party.
Once you’ve reached an agreement, it’s time for your business lawyer to put it in writing. Make sure that all of the terms of the contract are clearly stated and easy to understand. Have each party sign the contract, and keep a copy for your records.
By following these steps, you can ensure that your next contract negotiation goes smoothly and ends with a fair agreement for both parties involved.
As a business owner, you must have a good understanding of contracts. After all, contracts are how you protect yourself and your business — they’re not something to be taken lightly. If you have any questions, be sure to consult with an experienced business lawyer who can help guide you through the process.