Business contracts are legal documents created to bind two or more people to an agreement in the business world. 

What Is a Business Contract and When Might You Need One?

Contracts are like rules to a game; when you start playing a game, everyone needs to understand the rules in order for the game to run smoothly, for everyone to be treated fairly, and for the game to ultimately be enjoyable. Everyone involved is told exactly what roles they are expected to play, what their responsibilities are, and what the lines of right and wrong, fair and not fair, are. 

You'll want to include at least the following information to create an effective business contract:

  • Contract date
  • Names of the people or companies involved in the contract
  • Any amount of money exchanged or owed and corresponding dates due or paid
  • Expiration date of contract (if applicable)
  • Consequences for breaches of contract or any other incomplete responsibilities

Contracts are helpful and quite necessary throughout the start-up and running of a business. It is always a good idea to form contracts for any buying or selling of products, money, or services. 

Persons or entities involved in contracts can include any party that enters into a business relationship with another, such as the following:

  • Business entities 
  • Non-profit organizations
  • Employees
  • Clients
  • Customers 
  • Suppliers

Small business owners will want to create contracts for all or some of the following situations:

  • If they form a partnership with another business person.
  • If they buy or sell any goods or services.
  • If they are involved in any real estate transactions.
  • If they start a franchise.
  • If they are involved in any freelancing or are working as an independent contractor.
  • If they are hiring any contract workers or service providers.

Business contracts will help in any of these types of situations or relationships to lay out the expectations of both parties. 

This kind of clarity will be beneficial to all individuals and businesses involved in a contract. 

You wouldn't want to rent a car without signing some kind of contract. You will want to be sure that the car is insured and safe. You will also want to know what's expected of you in case of a theft or accident. The rental company will want to be sure that their vehicle is taken care of and that the renter understands their responsibilities in case any issues arise. If something does come up, each party can rely on the other to uphold their end of the contract because both sides are legally bound to it.

Business contracts are also called business contract templates and business contract agreements.

Difference Between a Contract and an Agreement


Contracts and agreements are frequently mistaken for the same thing, but they are a bit different.

An agreement is the understanding that two sides have with one another regarding their rights and responsibilities relating to a particular issue, while a contract is the agreement written and signed so that it is legally binding.

Essentials of Business Contracts


If you want your contract to actually work, and you want to legally enforce it, you'll need to include several essential parts.

Each contract needs to start with a particular offer of something like goods or service or payment. Then there needs to be a clear acceptance of the offer. All sides of the offer need to express consent or agreement out of free will. Coercion is not allowed. 

All parties need to be in agreement that a contract is being created and that they will be legally obligated to uphold its terms. 

Both sides of the contract need to be offering something, otherwise one side is just giving a gift. If one side is offering money, the other side will likely be offering some kind of goods or services for that money. 

All parties involved in the contract have to be of sound mind. This means that you cannot form a contract with a child or someone under in influence of drugs or alcohol. 

The reason for the contract has to be legal. You cannot form a contract to buy or sell illegal goods or services. 

Anyone can enter into a contract that doesn't have all of these essential parts, but the contract will be unlikely to hold up in a court of law.

If you need help with business contract, you can post your job on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.