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A business contract is a legally binding agreement between two or more parties to do or not to do certain things. For example, a business contract could be for the sale of goods or supply of services at a certain price.
There are many different types of contracts including:
The process for creating a contract generally includes information exchange, discussion, negotiation and employment agreements.
To be legally binding a contract must contain four essential elements. These four elements are:
The four essential elements of a contract can be briefly explained as follows; a contract is formed when one party makes an offer and that offer is accepted by another party for an exchange of some benefit or something of value by the parties (this is the consideration element). The intention of the parties is that they are legally bound by the contract. Read more...
Even if the four essential elements are present a contract could in be invalid if:
Contracts can be verbal or written, provided they contain the four essential elements of a contract. However, a verbal contract is much more difficult to prove. Some types of contract such as those for buying or selling real estate and credit must be in writing.
A written agreement is recommended as it:
Unless you're a lawyer nobody expects you to write your own contracts. However, as a business owner you're expected to be able to read a contract and understand what it means.
Some of the general matters that a business contract can cover include but are not limited to:
The Small Business Development Corporation (SBDC) is frequently asked for standard business contracts for a variety of purposes such as buying a business, leasing commercial premises, partnerships or employment contracts.
We do not provide standard contracts or templates, although some 'standard contracts' may be available through industry associations. We recommend contracts are drafted to reflect the unique commercial circumstances of the parties negotiating the agreement. The lawyer drafting the contract will take into account their client's concerns, commercial risks and matters agreed during negotiations.
Keep in mind that you should always get legal advice before signing a significant contract.
In business it is particularly important to get the right advice before entering into a business contract, or you could face significant and far-reaching consequences.
Legal advice will ensure your rights are protected and favourable terms are negotiated on your behalf - terms that better suit your business and allow you to trade profitably, which means the likelihood of costly disputes in the future is reduced.
Furthermore, the underlying transaction of a contract can have GST, taxation and stamp duty consequences and this aspect of the contract could also require professional advice.
It is strongly recommended you seek professional advice before signing any contracts. Read more...