Contracts are documents that act as proof of details.
Contracts help to maximize revenue and improve business value.
Contracts are vital when it comes to business transactions.
Legal contracts also act as business records between stakeholders and help build a rapport between customers or any other desired party. They also help avoid misunderstandings and protect proprietary information.As a business owner, which best business contract templates should you have for seamless business operations? And, more importantly, do you need legal advice or law firms to draft these contracts or agreement templates? This blog answers all of these queries.
The basics (of a contract)
In the earlier days, there were very few written contracts, as deals (personal and professional) were done with a handshake. If there was a problem, stakeholders of the contract could take the issue to court, the judge would hear the case (even if there was no written document in place), and a judgment would be passed in case of a breach.
While verbal contracts are still legal, all contracts in written form seem to hold precedence over verbal contracts as it is easier to enforce in the court of law. Written contracts are usually detailed, and every effort is taken to ensure that the contract lists all possibilities and eventualities, especially in case of a breach. This is what makes it a binding contract.
Further, contracts are divided as unilateral and bilateral contracts.
Valid contract = Toot, toot to success
Besides being clear and specific, all contracts should meet certain criteria to make them legally enforceable. All legally enforceable contracts are also known as valid contracts. What this means is that in case of a contract breach, either party can approach the court to help settle the dispute. This legal process or litigation helps decide if the contract has been breached or whether there are circumstances that can negate the breach.
Read more about the six essential elements in a valid contract.
Now that we know that written contracts help safeguard the business, here is a list of some important contracts you need whether you are a freelancer or a service provider or own a small business.
Protecting your business
Which contracts help protect your business?
What are the different parts of a contract?
Is an online contract valid?
What are the consequences of not having a written contract?
Do these questions keep you away from contracts? Then, let’s break it down for you.
A contract is a legal document between two parties. In a business, this is usually between a buyer and a seller of goods or services, which lists the details about the exchange of value between both parties. It includes information about payments, the types of goods, products, or services, and each party’s responsibilities. A written contract enables either party to take legal recourse in case of a contract dispute.
What is a business contract?
A business contract is signed between a business and a buyer and typically involves exchanging money, goods, or services. These contracts can be hundreds of pages long or can have just two lines to talk about the exchange.
Business contracts only become legally binding when both parties sign them. These contracts typically range from sale agreements to service agreements depending on the type of business and industry segment the business belongs to. The business contracts also includes disclaimers about the services or products offered.
|Revv Tip: Verbal contracts are also legally valid. But it usually causes a lot of confusion, especially around the roles and responsibilities, making a written contract a better option.|
If you are related to the real estate industry, here is a blog to assist you with the nitty-gritty of an under contract.
eSignatures and business contracts
In the year 2020, when social distance became the new norm for everything, the usage and popularity of eSignatures grew exponentially. But what about business contracts, does eSignature hold valid for these too?
The short answer is ‘Yes.’
The long answer, according to the E-Sign Act of July 30, 2000 is that electronic signatures are legal and valid. This means that any digital business contract that businesses receive online and are signed online is still enforceable by law. The E-Sign Act does hold certain provisions for safeguarding the integrity of electronic signature, including specific hardware and software requirements that software applications need to comply with.Revv Tip: If you still don’t want to tread the murky waters of electronic signature and look for a faster and quick solution, Revv is here to help. The eSign button in Revv lets you sign documents. Revv also comes with vetted templates that adhere to the legalese of the state.
What happens if you don’t have a business contract?
When you have a contract, you are clear about your roles and responsibilities. You also have a clear roadmap providing all the deets of the other party, including their obligations.
The absence of such documents gives rise to disagreements. This, in turn, increases the need for negotiation, which affects deliverables, and eventually, the business bears the brunt of it all.
If your are scared of understanding contractual clauses, read this blog and overcome your contract clause fear in one go.
What are the different types of business contract templates?
Most business contracts fall under three main types of categories – sales, service, and employment-related.
Sales contracts are legal documents that cover how property, goods, and services are purchased and sold. These documents provide the legal framework for the transference of titles. A common example of such a contract is a purchase order. A purchase order is a legally binding document that commits a business owner to purchase an item or quantity of the said items at an agreed price point. It also specifies the delivery date and the payment terms.
Employment-related contracts like an employment agreement or independent contractor agreements help define the employer and the employee’s relationship.
For example, the employment agreement contract specifies the job role, duration, compensation and benefits, grounds of termination, and any other issues related to your business, such as ownership of the work done. (The details and terms of the contract are explained below in the blog.)
Lastly, service agreements help protect businesses that are selling services. These documents provide the necessary information like the type of service, the timeline in which the service will be provided, the service’s contract’s clauses terms, and other details needed to cover the parties’ agreement.
Some of the other business contracts include the bill of sale and partnership agreement.
A bill of sale is an agreement between two parties that states who owns the property, when it was sold, how much it is worth, and who was the original owner. These types of contracts are often exchanged between the seller and the buyer.
On the other hand, a partnership agreement helps define the relationship between business partners and dictates the way in which the business is run.
People also ask about business contracts:
What are the types of business contracts for small businesses?
There are three broad categories of business contracts – sales business contracts, service contracts, and employment related business contracts. Each of these contracts helps define the relationship between stakeholders, define the payment terms, provide the details of the contract’s duration, etc.
How do you write a business contract?
You can use simple language to describe the contract’s clauses or take the help of your legal team to draft a contract template. Alternatively, if writing business contracts is scary, you can also use readymade customizable templates such as those available at Revv. (You can download and edit the contract templates here.) You can read more about critical clauses that save you in uncertain times here.
What is the cooling-off period in a business contract?
In the United States, most business contracts come with a three-day cooling-off period. This allows them to cancel the contract within three business days of signing the contract. While this is applicable when it comes to the door to door sales or second mortgages and for certain goods and services like health club memberships, dating memberships, dance lessons, or timeshare properties, this law is not applicable in the automobile industry.
Can you make a contract if your company is not registered?
You can always refer to your company as an unincorporated corporation in a contract. But remember, the general rule of thumb is that the promoter of the company can be personally liable for any contract breach. If your company is later incorporated, ensure that all of your liabilities are removed, and it now falls under the LLC or corporation. Otherwise, you might be jointly liable for the breach.
Protecting what is yours
How do you protect your businesses from Intellectual Property theft?
How do you protect your confidential information?
How do you protect your business from employees trading secrets with competitors?
The answer, my friend, lies in the non-disclosure agreements and provisional patent applications.
It is quite unfortunate that not every person or business keeps their word. Contracts such as a non-disclosure agreement or even provisional patent application help safeguard what is yours and what is theirs.
What is a non-disclosure agreement or NDA?
A non-disclosure agreement is a legally binding business document that is a must-have for any business entering into a negotiation with another company. This document outlines that even if there is an exchange of confidential information between the stakeholders, it will not end up at the hands of the competitors.
What are the benefits of using an NDA?
Keeping confidential information confidential.
The NDA’s language ensures that the two parties cannot reveal any information regarding the other party or parties’ business processes or plans. These plans can range from marketing, sales, how the business is run to that of trade secrets or even business plans.
What are the different types of NDA?
There are three types of non-disclosure agreements, the mutual non-disclosure agreement, the non-mutual disclosure agreement, and the disclosure agreement.
While the first one is signed between businesses and where both parties cannot reveal any sensitive information, the non-mutual one is majorly signed only by the employees. The disclosure agreement is often signed between parties when they need to reveal information. For example, a doctor might get into a disclosure agreement with the patient where he/she reveals the medical history to an insurance company.
Remember, an NDA is a legally enforceable document, and any violation can lead to legal penalties. But watch out for those pesky little NDAs that are too broad or vague. For example, in an attempt to protect your business, if, as an owner, you create a broad NDA that forces someone to remain silent about fraudulent activities, this document then can be voided by courts during an arbitration.
This is why draft an NDA that defines the scope of confidential information, possibly, going as far as to explain why it needs to be protected like the ‘chosen one’ and how it directly pertains to your business.
But what about patents? How do you protect, especially something that is yet to become ‘yours?’
For that, there is something called the provisional patent application.
What is a provisional patent application or PPA?
A provisional patent application or a PPA gives the filer a year’s extension against the US nonprovisional patent application. The filer can use this year to experiment and perfect the patent, find a financial backup, determine the market niche, and find interested parties for licensing, etc., before the filing of the nonprovisional patent application. This also protects the filer from additional charges associated with prosecuting a nonprovisional application during this period.
In short, it’s a sure-fire way to obtain the ‘patent-pending’ status in the United States Patent and Trademark office.
Things you should keep in mind about the provisional patent application –
- A PPA will expire after a year
- You cannot extend or renew a PPA
- A PPA will never become a patent
- You cannot file a PPA for a design
- You can use the term ‘patent-pending’ for the duration of the one-year pendency of a PPA
Protecting the people around you
Now that your business is well protected, how do you go about protecting your human resources? They are the ones who are responsible for helping your company reach new heights. And, no, it is not about ensuring that the office is well-ventilated and lit appropriately (sweatshops are a thing of the past, after all), but their overall well-being. You use documents like an employment agreement and offer letters, of course!
Here’s how to do it.
What is an employment agreement or employment contract?
While this document might not be on the mandatory checklist if you are just starting, it should be one. This document is said to provide strong measures of protection to both the employer and employee alike.
Let’s break this down a little further.
An employment agreement is a document that is signed when the employee joins the company. It is a document that is applicable for the entire duration the employee works for the organization. Here are a few important issues that employee agreements clarify:
Salary of the employee
This includes benefits, basic pay, and other allowances and bonuses that the employee can earn during their employment. While the benefits clearly state health insurance, dental insurance, it also defines the deductions (if any) from the employee’s salary.
This section lays out the job responsibilities of the employee, albeit in broad strokes.
Protection on confidential information
Employment agreements cover the use of confidential information. It explains that the employee is prohibited from using the said information with outsiders in clear and concise terms. This part of the contract also includes a non-compete clause that prevents the employee from switching jobs and working with a direct competitor for a specific period.
For businesses, this place also includes all the terms and conditions that the employee must comply with to protect its intellectual property. Sometimes, a separate employee NDA can also be shared.
The performance review section lays out when the reviews will occur and what indicators will measure the performance. It also enlists what rights the employee has during such a review.
An employee agreement also talks about the termination of employment. This clause includes terms of how and when employees can quit their jobs, the days of notice that need to be given, etc. It also talks about how an employer can terminate the employee.
Besides giving clarity regarding the job role and stability of a job, employment agreements also help settle disputes.
A group of loyal productive employees is an organization’s strongest weapon against its competitors, and an employee agreement helps strengthen that relationship.
What is an offer letter?
Getting the right human resource is the key to the success of any business.
And, the first exchange of business documents that occurs between the employee and the employer is usually an offer letter that acts as proof for the confirmation of the job. This document is shared to the selected candidate to accept and usually contains basic details such as the candidate’s designation, total compensation, benefits, and employment start date.
Since this becomes a time-bound activity, drafting the right legal document is important.
Other contracts that benefit small businesses
While for most small businesses, the above list is a good starting point, here are some of the other documents that you just shouldn’t ignore.
In short, a business plan is a document that summarizes the operational and financial objectives of a business. Different from that of a business proposal, this document acts as the roadmap to success for the company.
Want to start a new venture?
Looking for start-up financing?
This document is incredibly useful for detailed financial projections and forecasting the business performance, and even defining the marketing objectives. All in all, this document acts as guidance for everyday planning. A business plan, however, needs to be updated and reviewed whenever possible.
Terms and conditions
Any website that interacts with its customers should include a terms and conditions page. This lays out the rights and obligations of anyone using the page. It also outlines the legal limitations and responsibilities of the website owner for any damages or harm incurred during the usage of the website.
This policy document also outlines how the company will use the information, and how the company meets legal obligations. It also explains how the users sharing their data can seek recourse if the company fails to meet those obligations.
Other generic questions about contracts:
Are verbal agreements as good as a written contract?
Both the verbal and written agreements are enforceable contracts. Similar to written contracts, verbal contracts also need to meet the requirements of a valid contract, like include all the essential terms, include an offer and a consideration. Both parties should be bound to the terms of the contract when they sign it.
Are handshakes legally binding contracts?
All forms of agreements, handshake deals and verbal agreements can be legally binding contracts provided they comply with the essential terms and conditions of the contract. Both the business parties also need to follow the intention behind the contract terms. Generally, it is always advisable for contracts to be documented in writing.
Things to keep in mind when drafting best contract templates for small businesses
When it comes to drafting new contracts, you might head off, looking for law firms or some form of legal advice. But this might cost you an arm and a leg.
The quick solution, use readymade legally vetted contract templates available online.
So, how do you screen something which might be beyond your expertise? The simple answer, sign up for their free trial and use the tool that best addresses your solution.
Revv is a business document management software that offers you cloud storage, legally vetted templates in various niches like real estate, food and beverage, catering, freelancers, consultants, etc. It also comes with eSignatures, Stripe payment integrations in the documents, multi-device functionality, multiple users, form-mode document generation, workflow-based approvals, and more.
|Revv Tip: Not sure if the legal agreement templates available are useful? Just head to the templates page, draft your document, and download by signing up. For instance, if you are looking for a photography contract and not sure if you need this particular template, you can edit the document, download the written agreement and verify it with your legal team.|
The best part, Revv’s pricing plan can be customized to suit your business needs.