Types of Business Contracts
General Contracts, Employment Contracts
Business Contracts
At some point all business owners will eventually need to use a contract that details the specifics of their various business relationships. From partnerships, to lease terms, to general agreements, business contracts are important because they spell out the meanings of different business scenarios, providing all parties with legal protections and rights. To get a sense of the most common types of contracts that exist, consult with a business attorney and request samples of contracts to review. Most lawyers practice business law and are certified in specific states. If your business for example is located in NYC or Northern NJ you should find a local business attorney within these regions. Here are some of the most common types of business contracts used by today’s business owners.
Contracts Are Necessary
Contract Law
Contract law may be defined as the body of law that oversees written agreements as pertains to the exchange of goods, services, financial transactions and property. In other words, contract law is the legal field that oversees the legally binding verbiage that is included in such documents. Many business circumstances require the use of contracts to clearly spell out the terms and conditions of the business relationship. First, all contracts include certain elements including the clearly defined terms and acceptance of those terms by way of signatures from both parties. Additionally, contracts may involve people or they may involve things like buildings, equipment, products and services. Today’s contract lawyers are experienced in the exact legal terminology that makes a contract binding. When considering a contract, it is important for parties to be able to identify the business scenario so that the most appropriate contract can be put into place.
Types of Business Contracts
Contracts are an important part of any business. With so many types of contracts available to business owners, it is important to have a clear understanding of how these contracts can enhance the business relationship experience. Typically, contracts fall into the following four categories: general contracts, leases, sales and employment contracts. Remember; always consult with a business attorney in NJ to learn more about the ways in which these contracts can be applied to today’s business transactions and to determine if a certain type of contract is most appropriate for the business situation at hand.
General Contracts
First, general business contracts are those that determine how a business is structured. These contracts outline legal protections for stakeholders and they define how arrangements between the company and other parties are to be made.
Partnership Agreements
A partnership agreement is a contract that outlines the relationships between partners who have agreed to pursue business endeavors with one another. This includes their individual duties and contributions to the business.
Joint Venture Agreement
A joint venture agreement states that two parties dually agree to common objectives, usually direct contributions to a shared venture.
Indemnity Agreements
An indemnity agreement is a contract that states one party will indemnify (“hold harmless”) another party if damages resulting from a specific agreement were to occur.
Nondisclosure Agreements
A nondisclosure agreement provides legal support to the business owner if an employee, client, vendor, supplier or independent contractor shares proprietary information with others about the business. A nondisclosure agreement provides legal support if any of these parties discloses such confidential information. If this information is illegally disclosed, the business owner has grounds for taking legal action.
Promissory Note
A promissory note is used when someone borrows money from the company. This contract type lists the loan amount as well as repayment terms. This includes any accruing interest rates or late and non-payment penalties.
Security Agreement
A security agreement is a contract between the lender of a loan and the borrower. It lists assets that may be used as collateral for securing a loan. These assets are then forfeited by the owner should the loan ever go into default.
Franchise Agreement
A franchise agreement is one that outlines the relationship between the franchiser and franchisee. It discusses items such as the specifics of support provided by the franchiser such as advertising, branding and other assistance as the franchisee grows their business.
Confidentiality Agreement
A confidentiality agreement is one that states information cannot be disclosed to third parties under certain circumstances. For instance, if the company has certain proprietary information, employees, vendors and even clients are limited in their ability to speak on this information or they could face legal repercussions.
Power of Attorney
A power of attorney permits other individuals to make legal decisions on the behalf of the business owner. The person who becomes the power of attorney is referred to as the agent, or sometimes the attorney-in-fact. This person must manage important legal or financial matters in the event that the business owner is unable to do so, such as with a physical incapacity.
Lease Contracts
Lease contracts are common contracts used by businesses as they rent out properties and lease equipment for their business operations. The two most common types of lease contracts are:
Property (Building) Leases
Leases for properties outline the conditions under which commercial real estate property or tracts of land can be leased from a landlord to a tenant. This includes duration of lease, monthly payments, deposits and maintenance of the property.
Equipment Leases
Leases for equipment detail the specific conditions under which these items can be leased. This includes the specifics on any monthly payments, deposits, maintenance and other terms and conditions. Common equipment that is often leased by a business includes commercial photo copiers or other heavy equipment for construction.
Sales Contracts
Sales contracts are those agreements that lay out the details of how goods and services may be bought and sold. They provide the legal framework necessary for transference of these items.
Bill of Sale Contract
A bill of sale is a legal document that transfers the title of a property to someone else. In other words, this is a legal agreement that provides proof of ownership. It serves as proof of the sale and it determines who actually owns the property, how much it cost as well as when it was sold.
Purchase Order
A purchase order is an agreement that states a business owner will purchase items at certain quantities, at certain prices, and by a specific due date. This is the official offer that is initially provided by the buyer to the seller.
Warranties
Another common business contract is a warranty. A warranty is used to list the conditions that would void a contract.
Licensing Contract
When companies sell products, licensing contracts become valuable when the intellectual property, invention or creation can be used by someone else in exchange for compensation. This type of agreement outlines how much they will pay, who can reproduce the product, and any other restrictions on its use.
Employment Contracts
At some point all companies will need to hire employees to keep their business operations running smoothly. For those employers who are ready to hire, different employment contracts are imperative for legal protections. In these instances, it is important for employers to carefully document their relationships with their employees for the best legal standing. Employment contracts carefully lay out the terms and conditions of employment with the company. Consult with a top business attorney for more information on employment contracts.
General Employment Contract
An employment contract describes the relationship between the employer and the employee. Such information may include the duration of employment, compensation (including bonuses), benefits, job responsibilities, reasons for termination and other employment related concerns.
Independent Contractor Agreement
An independent contractor is someone who has limited, project-based employment with a company. As per the federal government guidelines, an independent contractor is not an employee and instead works on a contractual basis. For example, independent contractors may be hired to complete certain short-term projects that are their specialty such as development of a new website or other projects that cannot be handled by the internal team.
Consulting Agreement
A consulting agreement details the role and responsibilities of a consulting relationship. For instance, when a company hires an expert such as a consultant to advise on internal business processes, the consulting agreement will outline the consultant’s role within the company, what they will do as a consultant and also any limits of this role.
Non-Compete Agreement
A non-compete agreement states that for a certain time period, an employee may not compete with the business once they leave the company. For instance, if the employee were to leave and then start their own similar company then they could not do so under the terms of the non-compete agreement.
Oral Contracts
While the most binding contracts are those that have been written down there are also instances where oral contracts are recognized. Sometimes oral contracts are legally enforceable when both parties have verbally agreed to certain terms. The caveat to oral contracts is that each party may have a different interpretation of what was said when compared to the other party’s interpretation. For instance, one party may remember one set of terms such as length of contract whereas the other party may remember something entirely different. A seasoned contract lawyer can determine if this oral contract is indeed valid or not.
Breaches of Contract
A breach of contract occurs when one party fails to fulfill the duties set forth in the original agreement. The breach may be either material or minor. A material breach occurs when a serious offense has occurred. This gives the business owner the right to sue the other party. A minor breach is less offensive and does not cause as much damage as a material breach. Breaches occur when:
· One party does not do as they promised as defined within the contract.
· One party prevents another party from performing their duties as outlined by the contract.
· One party outwardly disregards and breaches a fundamental component of the contract terms.
· One party intends to not perform the contract duties when there is still duration of the contract term remaining.
Types of Damages
When someone breaches a business contract, the other party is entitled to remedies that correct the breach. One common way to rectify the breach is through damages awards. Damages awards are monetary compensations that are made to the business owner who has experienced some sort of loss because of the breach. Such awards include:
Consequential Damages
These are damages that must be payed by the breaching party that would put the business owner back in good business standing as if the breach had never occurred.
Punitive Damages
Punitive damages are punishments enforced by the court who ensures that a reasonable payment is made to the business owner.
Liquidated Damages
Liquidated damages are specified amounts outlined in the original contract. So, if the contract is ever breached the breaching party will pay this set amount immediately.
Nominal Damages
Nominal damages are minimum amounts that the business owner can recoup if the other party only caused minimal financial damage.
Consult with a Contract Lawyer
Breach of any of the aforementioned contracts is a serious offense. A breach of contract refers to the failure of parties to adhere to the terms of the contract. These offenses may be minor or they may be worthy of a lawsuit if major damages have occurred. A knowledgeable contract lawyer can intervene on the behalf of a business client who feels the terms of their contract have been violated by the other party. An experienced contract lawyer will be aware of the common types of breaches and will be able to provide helpful legal advice and next steps for the business owner. Relying on the expertise of a contract lawyer has helped many business clients seek damages, obtain compensation and also restrict further actions of the violating party. Lawyers who specialize in contracts can determine the enforceability of a contract—this includes both oral and written contracts.