Legal Business Contracts: Everything You Need To Know
Legal business contracts are business agreements between two or more parties that are enforceable by law.3 min read
Legal business contracts are business agreements between two or more parties that are enforceable by law. Most business owners focus on implementing their core business ideas and providing value to their customer base. However, they often encounter legal hurdles and issues that are outside their area of expertise. One such issue is the development of a legal business contract.
When running a business, owners will encounter situations where they have to create or sign various kinds of business contracts. To ensure the legality and enforceability of a business contract, it must meet certain considerations.
The contract must contain clauses stipulating the benefits that each party will receive under the contractual agreement.
Offer and Acceptance
This aspect of the contract refers to an explicit or implicit offer by one or more party. There should also be an acceptance or implied acceptance of this offer by the other contracting party or parties.
Meeting of the Minds
Also referred to as mutual assent, the term “meeting of the minds” is used to describe the specific agreement (i.e., the terms and conditions of the contract) that is agreed to by all parties in the business contract.
This indicates the ability of the contracting parties to fulfill their end of the agreement. In most cases, it demonstrates the financial or human resource capacity of the contracting parties to enter into the business agreement.
Most business contracts are entered into for a specific time period, and all contractual obligations must be fulfilled within that period. The contracting parties must adhere to the stipulated time frames/deadlines or face consequences — usually financial in nature.
Let's take a look at some of the business contracts that one may encounter during business operations.
A lease is a type of business contract between a tenant and a landlord that specifies the terms under which the landlord allows the tenant to use the property. Since most businesses don't have the resources or inclination to buy or build their own commercial buildings, they often enter into leases that grant them the right to use a property for commercial purposes. Businesses enter into leases to acquire space for offices, retail stores, warehouses, manufacturing facilities, etc.
Employment contracts are legal agreements between employees and business owners. This contract details employment terms including the responsibilities of the employee as well as pay, benefits, overtime, and vacation periods. Although some businesses may opt to hire employees without formal employment contracts, a written employment contract is advantageous since it provides additional levels of security to both employees and employers.
If you want to hire an independent contractor, it's best to use work-for-hire agreements — a type of contract that explicitly states the type of work to be done and the payment to be received by the contractor.
Sales contracts are agreements between two or more parties that document the transfer of ownership from the seller to buyer and detail the terms of the financial transaction. Although small businesses usually operate without sales contracts, formal agreements with suppliers are advantageous since they help ensure a steady stream of supplies to keep your business running smoothly.
Licensing agreements are often used when owners of intellectual property want to license their creations to third parties. Intellectual properties are creations of the mind including but not limited to:
- Original creative works.
A licensing agreement gives third parties the right to use the owner's intellectual property in the manner specified in the contract. For small businesses, a licensing agreement can be used to earn profit by allowing larger businesses to use their resources in the development of intellectual property.
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