In simple terms, a business contract is a legally binding agreement between two or more people or businesses. Business contracts can be simple or they can be very complex, but it’s important to completely understand them because it is a legal agreement. It is also one of the most important accounting definition related to invoicing.
Business contract rules and formats
Businesses big or small have to deal with contracts, whether it is a lease agreement for rented office space or an agreement with a vendor to receive products or services. If there are items in a business agreement that you don’t fully understand, you should seek legal counsel.
A business contract can be in written form, or even in verbal form, or sometimes it is a combination of both. Written business contracts usually include a form letter and a place for signatures, while verbal agreements rely on the trust of all parties involved, and are much harder to prove in court if something goes awry. The smartest idea is to get everything in writing, just in case.
Elements included in a business contract
A standard business contract includes an offer, an acceptance, the intention to create a legal relationship, and a consideration that is usually financial – all of these items must be included in the contract in order for it to be considered legally binding.
If it touches on all of these points, it may still be considered invalid if the proposal is suggesting conducting something illegal, is created by a minor or anyone that lacks capacity, or if the contract was agreed to under misconduct or undue influence.
Other than that, there is no specific format a business proposal must follow. It should include terms and conditions, warranties are an optional piece of a contract, and signatures from all involved parties. Otherwise, some other parts of a business proposal may include details of the parties to the contract, any subcontracting agreements, the duration for which the contract is valid, definitions of key terms used throughout the proposal, clear descriptions of goods or services the business will provide, payment details and scheduling (including late fees if necessary), important dates and milestones, required insurance information, damages or penalty provisions, renewal options, information on dispute resolution, termination conditions, and any other special conditions that should be outlined as part of the document.
Often, these items are broken up within the business contract, and is made up of five parts: parties, consideration, terms and conditions, competent parties, and legal purpose. The parties section of the proposal simply states anyone and everyone involved in the business agreement. These can be personal names and/or the businesses involved.
The consideration part of a contract explains what each party is going to gain by entering into business with each other. The consideration portion may also include information about fees and payments. The terms and conditions section outlines the rights and obligations for each party involved. This includes the overall business agreement, including the nature of the work, when payment is expected, and how long the agreement is considered valid.
Validity of a contract
The agreement is only valid if all parties are competent and aware of the decision they are making; the competencies section provides the information proving the capability of the involved parties. And finally, the legal purpose section is what makes it legally binding.
If you are being asked to sign a business contract, be sure you read and understand every single word in the contract before signing any part of it. Many contracts are created to benefit one person, and often it is not the person signing it. It’s important to read every part, ask questions, and understand it fully, even if it means getting advice from an attorney before signing it.