Owners of small business will sooner or later need to draft and/or create business contracts as the company grows. In fact, each and every time you or your business agrees to take some action, make a payment in exchange for anything of value, or provide products or services for payment, you have created a contract.
Contracts are also known as agreements, terms and conditions, purchase orders, bills of sale, leases, or employment agreements. They can be verbal or in writing, although a verbal contract will be much more difficult to prove when in dispute. There are also contracts that have to be in writing, such as loan facilities, sale and purchase agreements etc.
Advantages of having a written contract is that it becomes your proof of what was agreed upon, prevents ambiguity or misunderstanding, and prevents either party forgetting or changing the terms later. It is also better as it defines the terms and conditions of the particular agreement.
As a business owner, you are expected to be able to read a contract and understand what it means, even if you do not possess any skills in drafting a contract. The task of drafting a contract is best left to the professionals. Keep in mind also that a legal advise is best sought before a contract is signed.
When to use business contracts?
- Hiring or when being employed as independent contractor
- Selling and buying services or goods
- Rentals, Leases and real estate purchases
- Partnerships and joint ventures
- Confidentiality agreements
- Selling your business
Business owners should keep in mind that usually when a contract is created, it involves monetary compensation. However, non-monetary contracts are also just as valid.