Common Contracts: Everything You Need to Know
Common contracts are the business contracts you are most likely to encounter in the operation of a small business.3 min read
Common contracts are the business contracts you are most likely to encounter in the operation of a small business. Like all contracts, they are legally binding written or oral agreements between two or more parties designed to fulfill certain agreed upon terms. Unlike complex contracts though, they are not as involved, as they tend to have fewer variables up for negotiation.
Most common contracts for small businesses can be classified as part of one of the following categories:
- Sales-related contracts
- Employment-related contracts
- General business contracts
The legalese for such contracts can sometimes be overwhelming, and consulting with an attorney about them is generally advised, but in the end, protecting your company from legal issues should be your chief priority.
Sales contracts deal with how services, goods, and property are to be bought and sold, and as well as how the legal parameters relating to the transference of titles are to be set out, if applicable. Some important terms related to sales contracts are:
- Bill of sale. This refers to a hybrid document that transfers the ownership of a property and offers proof that a contract was agreed upon for the sales terms. This contract is commonly used to recognize ownership of property and identify the owner of the property. For example, a bill of sale is commonly used for vehicle purchases.
- Agreement for the sale of goods. This is a sales contract that may be confirmed with a bill of sale after a transaction is completed.
- Purchase order. This legally binding contract commits the owner of a business to buy an item at an agreed price while specifying the payment terms and delivery date.
- Warranty. These are any actions or conditions that will void the contract.
- Limited warranty. This is a warranty with only one or a few conditions that will void the contract.
- Security agreement. This pledges a property or asset as collateral in order to secure a loan. If the loan is defaulted upon, then the asset will become the lender’s property.
An employment contract is a contract that sets the terms of a person’s employment. Details laid out in such a contract can include compensation, bonuses, and reasons for termination. They can also include a stipulation that an employee not work for a direct competitor for a determined time period after termination.
There are several kinds of employment contracts that one may encounter. These include:
- Consulting agreements. These outline responsibilities and tasks along with compensation in return for consulting work.
- Distributor agreements. These define one’s relationship with a distributor.
- Sales representative agreements. These set out a salesperson’s commission amount and how it will be tabulated.
- Confidentiality agreements. These bar individuals from disclosing restricted information to third parties.
- Reciprocal nondisclosure agreements. In these, both parties are barred from disclosing restricted information.
- Employment separation agreements. Also referred to as termination agreements, these formally end an employment relationship.
General Business Contracts
General business contracts relate to such topics as business structure and stakeholder protection. Examples of such contracts include:
- Advertising agency agreements. These establish the range of duties to be undertaken by an advertising agency, as well what the payment and length of the work will be.
- Franchise agreements. These outline the relationship between a franchisee and a franchisor, including such details as use of brand, advertising, and support.
- Indemnity agreements. In these, one party agrees that they will indemnify, or not seek legal action against, another party for damages.
- Licensing contracts. These give others the right to use your intellectual property, usually in exchange for monetary compensation.
- Covenant not to sue. In this, a party that is claiming damages agrees not to file suit against the party at fault.
- Settlement agreements. These involve two parties agreeing to bring an end to a lawsuit in return for concessions.
- Stock purchase agreements. These are contractual agreements to sell a specified amount of stock to an individual.
- Joint venture agreements. These set out the goals, obligations, and monetary contributions of those taking part in a joint venture.
As can be seen then from these partial lists, there are numerous different contracts covering all kinds of situations. If you need further help understanding common contracts, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.