What Do You Need for a Contract to Be Valid?

Key Takeaways

• A valid contract requires five essential elements: offer, acceptance, consideration, legal capacity, and lawful purpose.
• Contracts can be written or verbal, but written contracts are easier to enforce.
• Legal contracts reduce disputes by clearly defining rights, responsibilities, and remedies.
• Additional clauses—like warranties, representations, and boilerplate terms—help customize agreements and mitigate risk.
• Understanding what you need for a contract includes both legal elements and strategic considerations like clarity, enforceability, and the nature of the agreement.

Why do you need a contract? The main reason that you need a contract is to protect your rights when you enter an agreement with another party. For example, if you agree to help someone complete a project in exchange for money, you might have trouble getting the person to pay you if you don't have a valid contract in place.

What Are Contracts?

Contracts are legal agreements between two or more parties. A contract can be either written or verbal, and it creates an obligation between the listed parties. When writing a contract, the parties can outline several factors:

• The rights of both parties.
• Each party's responsibilities.
• Consequences for failure to complete the contract.

At their most basic, contracts formalize a relationship between two parties. In general, written contracts hold more weight than verbal contracts because they are much easier to enforce.

With a legal contract, you can protect yourself from being harmed by the other party and can also reduce the likelihood that you will accidentally breach the agreement. Written contracts can also help to avoid misunderstandings between the two parties, making it more likely that the contract will reach fulfillment.

When there is a disagreement between the parties of a verbal contract, it is possible that the courts will enforce the agreement. If you want to make sure that your contract is binding, however, it's best to write it down. Relying on a verbal contract can be very risky.

A written contract is only valid once both parties have signed it. If your drafted contract has not been signed, it's likely it's not enforceable, although you may be able to use the draft to demonstrate a verbal agreement. Thanks to electronic signature services, it should be relatively easy to have your contract signed.

Before you agree to a contract, you should always consult with a lawyer to make sure that your rights are protected. Many contracts include complicated legal language that is hard to understand, so having an attorney review and explain a contract will help you make sure that you will actually benefit from the agreement.

Key Elements Every Contract Must Include

To be legally binding and enforceable, a contract must include the following essential components:

1. Offer: One party must present clear and definite terms.
2. Acceptance: The other party must agree to the offer without changes.
3. Consideration: Both parties must exchange something of value—this could be goods, services, money, or a promise to refrain from an action.
4. Legal Purpose: The subject matter must be lawful. Contracts formed for illegal purposes are automatically void.
5. Capacity: All parties must be legally able to contract. This typically excludes minors, individuals with mental impairments, and those under the influence at the time of agreement.

These five elements answer the question “what do you need for a contract” and form the foundation for enforceability in both personal and business contexts.

Why You Need a Contract

You need a contract in order to make sure your rights are protected. In addition to outlining the responsibilities of all parties, contracts should be written to anticipate potential problems and should include a procedure for resolving disputes.

The most common reason to enter into a contract is that you wish to obtain something of value. For example, if you want to buy an item, a contract can make sure that the seller gives you the item after you have provided payment. Or, if you are the seller, the contract can guarantee you get paid for the item.

If you are the owner of a business, a contract can help to protect both you and your business assets. For example, you can use a contract to shield yourself from liability if your business hits a rough patch.

You may also need a contract if you want to prevent your former employees from working for one of your competitors. With a non-compete contract, you can stop your former employee from working for a competitor for a certain time period or in a set geographic location in order to protect your trade secrets and shield your business from harm.

Assuming that you don't need a contract for a small project is a very common mistake. Unfortunately, even minor projects can have their issues, so it's best to have a contract in place to make sure that you are fully protected. Even a short, basic contract can protect all parties involved and will make it more likely that the project will be successfully completed. You can even include provisions in your contract for what should happen if the project faces delays and takes longer than both parties expected.

Contracts can also make sure that you don't have to follow unfavorable rules. For example, if you are an employee of a company and are working without a contract, the company could decide at a later date to ask you to sign a contract that favors them instead of you. Insisting on a contract at the outset will define the relationship and make sure that you understand your responsibilities.

The Contract Lifecycle: From Drafting to Enforcement

Contracts follow a lifecycle with key phases:

1. Negotiation: Parties discuss terms and come to mutual agreement.
2. Drafting: The agreement is written with clear, enforceable language.
3. Review: Legal counsel often reviews the contract to ensure clarity and fairness.
4. Execution: All parties sign the contract (electronically or in print).
5. Performance: Each party fulfills their obligations.
6. Enforcement: If disputes arise or a breach occurs, the contract serves as the legal basis for resolution.

By understanding this lifecycle, you can better manage risk and ensure compliance at every stage of the agreement.

Additional Clauses That Strengthen Contracts

In addition to the core elements, robust contracts often include the following clauses to prevent disputes and clarify expectations:

• Warranties and Representations: Statements of fact or guarantees about what is being provided.
• Termination Clause: Outlines conditions under which the contract may end early.
• Dispute Resolution Clause: Specifies how disputes will be handled, such as through arbitration or mediation.
• Force Majeure Clause: Addresses what happens if unforeseen events prevent contract fulfillment.
• Choice of Law and Venue: Determines which state’s laws apply and where disputes will be litigated.

Including these provisions can reduce ambiguity and strengthen your position if legal issues arise.

Common Types of Business and Personal Contracts

Understanding the types of contracts available can help you choose the right one for your situation. Common contract types include:

• Employment Contracts – Define job duties, compensation, and termination terms.
• Service Agreements – Detail expectations between a service provider and a client.
• Non-Disclosure Agreements (NDAs) – Protect confidential information.
• Sales Contracts – Outline terms of a sale, including delivery and warranties.
• Independent Contractor Agreements – Clarify terms for freelance or gig work.
• Lease Agreements – Cover rental terms for property or equipment.
• Licensing Agreements – Allow one party to use intellectual property under specific terms.

Having the right type of contract in place ensures your rights and obligations are clearly defined and enforceable.

Frequently Asked Questions

1. What do you need for a contract to be valid?
   A valid contract requires an offer, acceptance, consideration, legal purpose, and parties with legal capacity.
2. Can a verbal agreement be legally binding?
   Yes, but written contracts are easier to prove and enforce, especially in court.
3. What makes a contract unenforceable?
   Lack of a legal purpose, missing elements like consideration, or incapacity of one party can void a contract.
4. Are templates sufficient for creating contracts?
   Templates can help, but legal review is recommended to ensure terms are specific and enforceable.
5. When should I hire a lawyer for a contract?
   When entering high-stakes agreements or if you're unsure about the legal implications of the terms.

If you need help understanding why you need a contract, you can post your legal needs 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, Menlo Ventures, and Airbnb.