Types of Contracts in Business – A Comprehensive Guide
Understanding the Different Types of Contracts in Business
Navigating the business world involves creating and signing various kinds of legal agreements. From signing a lease for your commercial space to hiring vendors for different services, you need to know about the many types of contracts in business. Anthony Law Group, a distinguished business lawyer in Phoenix, AZ, is here to break down everything you need to know before you create business contracts.
The Importance of a Legally Binding Business Agreement
Whether you run a small business or a major corporation, you need written contracts detailing all of your professional partnerships. These agreements not only establish a contractual relationship between your business and other parties, but they can help manage risks and settle disputes that arise.
Make sure you have a legal document for every partnership your business forms, since making a verbal agreement can have dire consequences. If you fail to have contracts written and signed, then you run the risk of implied contracts based on a vague, verbal understanding negatively impacting your business.
Attorneys can help business owners draft detailed contracts that clearly explain the terms and conditions. Having both parties read and sign these written agreements makes each of them accountable for holding up their end of the bargain.
Failing to uphold your part of the deal can lead to a breach of contract suit. Lawyers will look at the contracts signed and compare that to the services provided to determine if one party breached the contract. Being liable for breach of contract comes with financial loss as well as a hit to your professional reputation.
Six Common Business Contracts and the Parties Involved with Them
What are some types of contracts in business that you may be signing? Entrepreneurs and business leaders have to navigate various employment, service, and sales contracts. Take a closer look at the specific details involving common business contracts below.
1. Partnership Agreement
Going into business alone can be scary, not to mention a major financial risk. If you start a new venture with a business partner, you will need a written contract outlining the expectations of the two or more parties involved. This document outlines key details of the business relationship going forward, including:
- The funding each person contributes
- Asset division upon dissolving the partnership
- Ownership percentages
All joint ventures and partnerships need this standard contract to establish bargaining power among owners and set the business off on the right foot. A lawyer may also draft licensing agreements that allow the use of intellectual property.
2. Lease Agreement
Unless you are operating a business from your home, you will need to find a suitable space for commercial purposes. A large portion of your business expenses will go toward the payment terms in a lease that comes with occupying commercial properties.
This bilateral contract benefits the two parties signing the agreement. The tenant is able to use the property for their business operations while the landlord receives payment for providing the space.
These usually come as standard form contracts, which many times can end up being adhesion contracts, meaning that the terms are non-negotiable. In other words, a landlord likely will not rent a space to you if you cannot make the full monthly payment or requested deposits.
Similar to a lease agreement, you may also have to sign a materials contract for rented equipment. Vendors often require documentation to protect their personal property and avoid liability issues.
3. Employment Agreement
The standard practice when hiring employees involves extending to them simple contracts that both parties agree to before workers or independent contractors join the company. This notice should contain key information about a person’s employment, including:
- Their salary
- Necessary time commitments and scheduling
- Suitable grounds for termination
- Benefits like bonus pay or health insurance
4. Fixed-Price Contracts
Of all types of contracts in business, the service contract primarily follows a fixed-price model. Unlike a sales or unit-price contract that varies based on the products one party purchases, an enterprise service agreement features a set price regardless of project scope. You will not need to sign extra time and materials contracts that can ultimately increase the cost of your service.
5. Cost-Plus Agreement
A cost-plus contract sets the tone for many construction projects as well as innovative engineering projects. The service provider goes through all aspects of project management and delivers the requested services for a set fee. They then receive additional payment after completing the project to reimburse them for labor, materials, and other expenses.
6. Non-Disclosure Agreements
Say you decide to part ways with a vendor, but they have received confidential information about your business. You can protect your enterprise by asking them to sign a non-disclosure agreement, which prohibits them from sharing insider information about the business.
Countless Situations Require Formal Business Contracts
Professionals across every industry will utilize different types of contracts in business at one point. A business owner will extend a formal agreement to every employee or contractor they hire, and they may have to sign a sales agreement upon purchasing equipment.
Are you looking to launch your own franchise of an established business? Your venture will not be complete without a franchise agreement. Similarly, lawyers can draft documents to handle various types of other business transactions.
While implied contracts do not carry the same weight as written express contracts, they also remain a cornerstone for many businesses and their clients. Do not let one party negatively impact your operations because you do not have contracts in place. Protect your investment by establishing iron-clad contracts that you and other parties must agree to.
Review Your Business Agreements with a Qualified Contract Lawyer
Navigating the different types of contracts in business can be overwhelming. Do not risk agreeing to unfair substantive terms or falling victim to a breach of contract. Our legal team at Anthony Law Group can guide you through the complicated task of drafting and understanding each contract type.
We have decades of business law experience and can help you get through any type of business conflict. Contact us online or call (602) 362-2396 to schedule a consultation with one of our knowledgeable attorneys.