Financial contracts examples and financial contracts themselves provide an agreement between two or more persons or entities that are legally binding. A contract can be a verbal agreement, a written agreement, or a combination of the two.

Elements of a Contract

Verbal agreements are difficult to prove, as they rely on the good faith of the parties involved. Written contracts have either a standard agreement form or a letter may be used as confirmation of the agreement. It is advisable to have your business arrangements in writing to avoid problems, should it become necessary to prove a contract existed. 

Whether you choose a written, verbal, or combination of the two agreements, there are four essential elements of a contract that must be included to make it legally binding:

  1. First, there's an offer. 
  2. The next step is that the person accepts the offer. 
  3. Third, the contract must create an intention to form a legal relationship. 
  4. Finally, a monetary payment is the usual consideration for payment. 

A contract may be considered invalid if any of the following apply:

  • The contract entices someone into committing a crime.
  • It is illegal.
  • The contract is entered into by someone not capable of being in a contract, such as a minor or someone who is bankrupt.
  • The contract was agreed to by misleading or deceptive conduct.
  • The contract was agreed to under duress, unnecessary influence, or questionable conduct.

The general structure of a contract includes, but is not limited to, the following items:

  • A description of the goods or services your company either receives or provides.
  • A resolution process to handle any complaint or disputes.
  • A list of any special conditions.
  • Clarification of the conditions for terminating the contract.
  • Damages or penalty provisions.
  • Definitions of key terms you have used in the contract.
  • Details such as arrangements made for sub-contracting. 
  • Any guarantee provisions, including a director's guarantees. 
  • Information about insurance and indemnity provisions. 
  • Key dates and milestones. Specify the process, if any, for renegotiation or renewal options. 
  • The duration of the contract. 
  • Payment dates and details outlined. This should include if interest will be applied to late payments.   

General Steps for an Agreement Structure

There is no set or specific format the contract must follow. Basically, the contract will include implied or expressed terms that form the basis of the agreement. 

  • The contract may outline the conditions of the contract or any warranties. The contract conditions are a fundamental part of the agreement because if the conditions are not fulfilled, it is possible for the contract to be terminated and for the party to seek damages or compensation. 
  • Warranties, on the other hand, are less important as they are not fundamental to the agreement. A contract cannot be terminated if there are warranties and they have not been fulfilled. If this situation presents itself, you have the option of seeking compensation for any losses that were incurred.
  • When negotiating the terms of the contract, it is important that the conditions of the contract are clearly defined and outlined, and each party is in agreement with what is in the contract. 
  • If a contractor is hired to produce material that involves copyright protection, make sure the contract includes these protections. This ensures you will retain ownership rights to the material you had created and paid for. 

Tips Before Signing a Contract

Before signing a contract, follow these important tips:

  • Read the contract thoroughly from top to bottom; this includes the fine print. 
  • The negotiated terms and conditions between the parties involved should be clearly outlined. 
  • Seek the advice of an attorney to ensure the contract is in your best interests. 
  • Don't rush. Allow enough time to read, absorb, and comprehend the contract. 
  • Do not let anyone pressure you into signing the contract if you have questions about any portion of it. 
  • A signed contract should have no blank spaces. Cross them out if there is nothing to add to it, which prevents the blank space from being altered at a later date. 
  • Have all parties initial any changes made to the contract. 
  • Obtain or keep a signed copy of the contract for your records. 
  • Once a contract is signed, it may not be possible to get out of it unless compensation is paid to the other party for its losses and expenses. If the other party chooses to file a claim against you, be prepared to pay court costs along with any compensation awarded to the other party. 

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