Use a business contract to specify the terms of a business transaction.
Updated September 4, 2024
Written by Sara Hostelley | Reviewed by Brooke Davis
A business contract is a legal agreement between a buyer and seller of money, goods, or services. Large corporations, smaller entities, and individuals can use this document when making business exchanges.
This legally binding document should include all details about the exchange, including payment, the type of goods or services, and each party’s responsibilities. It will protect the buyer and seller if the other party doesn’t hold up their end of the agreement.
Not every business agreement is a contract. However, a business agreement becomes a legal contract when it meets the following four conditions:
Explore our free business contract templates to find one that’s right for your situation:
Establish the rights, responsibilities, and obligations of each partner in a business partnership.
Determine how your limited liability company will conduct itself and record information for the members' roles and responsibilities.
Establish the conditions of someone else's employment, including their salary/wage, job responsibilities, work hours, benefits, and employment duration.
Record a relationship between a company and a contractor who works for themselves, including details like the scope of work, expected deliverables, payment terms, and deadlines.
Establish a confidential relationship between the sender and recipient of sensitive information to protect its disclosure to unauthorized third parties.
Explain that one party will not hold another party liable for any potential damages, risks, or legal claims arising from a particular arrangement.
Outline all the key information of a purchase of goods.
Describe all the key information of a service arrangement.
Determine why you need a contract before you write it out. The type of contract you need will determine the details, terminology, and language to include.
For example, some contracts involve exchanging services for payment, while others involve exchanging goods. Seek legal advice from an attorney or another legal expert to ensure you remain in compliance and execute the proper contract.
Define all relevant parties in the agreement by providing the following information for each one:
Confirm that all individuals signing the contract can serve as their organization or entity’s legal representative. This way, you can prevent issues if any party ever needs to pursue legal action against the other.
All contracts share essential elements to make a legally binding agreement. These elements are the following:
Both parties must also clearly understand the agreement they sign, be of legal age, and have the legal capacity to enter an agreement. The agreement must also contain legal actions. For example, the contract can’t facilitate the sale of illegal substances.
Federal regulations will govern your contract, but you’ll also be subject to state-specific provisions.
Your state or jurisdiction may use different guidelines to interpret certain sections of your agreement. Specify which state’s laws will apply to your agreement so that all parties are on the same page.
Avoid using overly complex language in your contract agreement. Incorporating simple, plain language can increase comprehension for both parties, ensuring everyone knows what the agreement entails.
Using long blocks of text can make the text difficult for readers to scan. Instead, incorporate visual elements and other tools to increase readability and comprehension. For example, you can add proposals, sales quotes, expense forms, invoices, and bills of materials.
When you write a business contract, you don’t have to start from scratch every time. Use one of our free contract templates as a starting point. This way, you can include standardized terms and agreed-upon legal language.
Include party-specific information to tailor your contract as necessary. When you use a business contract template, you can save time while ensuring that you are thorough and incorporate legal requirements.
Explain the procedures for termination. For example, you may want to terminate the contract if it fulfills its purpose and you no longer need it. You may also want to terminate it if one party doesn’t fulfill their end of the agreement.
On the other hand, everything with the arrangement might be going well. If so, you may wish to renew the agreement. Describe how to renew the contract if both parties desire to do so.
Still, you can outline dispute resolution methods if a disagreement arises. This way, you’ll have a solid remediation plan, letting you resume the relationship efficiently.
Outline the requirements of the arrangement. Explain what each party has to provide, including deadlines and the scope of work.
For example, suppose you have service agreements with customers for a cleaning company. You should emphasize what services you’ll provide and how frequently. The agreement should also state the customer’s responsibilities, like providing you with efficient access to their property.
A business contract should also state the payment terms. Depending on the agreement both parties reach, the payment details may differ. For example, if you enter a rental agreement, you may agree to make monthly rental payments. However, if you enter into a sales agreement to purchase equipment, you may make one lump payment at the time of the exchange.
Business agreements may benefit from the inclusion of NDAs or non-compete agreements. This way, the other party won’t start a competing business, work for a competitor, or share confidential information. Tailor the NDA or non-compete agreement to your specific goals, ensuring the other party understands their limitations once they sign it.
Once both parties involved agree to the proposed terms and work through any remaining provisions, you can sign the document and obtain their signature.
While notarization for a business contract isn’t always required, you may still consider it to increase its legitimacy.
Here are some instances when using these legal contracts can be useful:
When you start a new company, you may need to complete the following documents:
You cannot force someone to sign a contract. However, you can refuse to do business with someone who won’t sign a contract. Losing your business might be the “nudge” another party needs to reconsider their position.
Yes. Any time the terms of the agreement change, you should document the changes in a new contract. The new contract should also clarify whether it will replace the old one entirely.
A conditional business contract is one in which certain conditions must be true before the contract goes into effect.
For example, suppose you have a snow removal business. In that case, your service agreement may read, “Ace Snow Removal will remove snow from parking lots, walkways, and business entrances after snowfalls of two inches or more.”
This contract is conditional because the company will only provide snow removal services if it snows at least two inches.
Cancel a business contract by learning if it has cancellation provisions depending on specific reasons or causes. For example, you may follow specific steps if you cancel it because an illegal action or misrepresentation occurs.
If you cancel a contract, you may request to cancel in writing, preferably using a notice of contract termination.
Yes. To be legally enforceable, both parties should sign the business contract.
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The document above is a sample. Please note that the language you see here may change depending on your answers to the document questionnaire.
