It’s challenging to run a business. But if you want to be a successful entrepreneur, there are a few things you need to know. And business contracts are among the things you need to know. In this article, you will learn about the types of contracts every entrepreneur should know.
There are different types of contracts, and these contracts vary, depending on the nature of your business.
But if you understand these various types of contracts, you can always tighten up every loose end whenever you are onboarding a new client. It will protect your business against possible litigation.
So, here are 7 types of contracts you should know as a business owner;
#1. Sales Agreements
The sales agreement is one of the most important types of contracts every entrepreneur should know. It’s a contract between your business and the customer (buyer).
A sales agreement covers the terms and conditions surrounding the sales of a product or service. It’s a legally binding contract that clarifies the terms of the transaction.
A sales agreement can be verbal or written depending on the circumstances surrounding the transaction. In this type of contract, you and your customer must agree before the offer is made.
However, any terms and conditions discussed after the offer has been made won’t be part of the sales agreement.
Again, whatever promises you made during the negotiation are legally binding if your customer relies on them.
It’s advisable to agree on terms with your customers before you accept any offer. Otherwise, your business may be vulnerable to possible litigation.
Furthermore, don’t be too excited to promise anything that you can’t fulfill. If your customer takes it seriously, it could be a breach of contract if you fail to deliver.
#2. Partnership Agreements
Partnership agreements are one of the types of contracts every entrepreneur should know. It outlines the relationship between the parties in a business partnership.
A partnership agreement drafts out every partner’s obligation and their contribution to the business growth.
The contract ensures that everybody in a partnership holds up to their side of the deal.
And if any of the partners isn’t keeping up with their obligation, they will be held responsible.
Here are some important elements of a partnership agreement;
- What happens if a partner dies
- What would happen if any of the partners become disabled
- The mechanism for transferring partnership interests
- Provision for a right of first refusal
- Keyman insurance (a business insurance policy owned directly by the partnership)
- Valuation of business assets
#3. Nondisclosure Agreement (NDA)
A nondisclosure agreement is among the important types of contracts every entrepreneur should know. The agreement prevents parties to a business transaction from disclosing confidential information they shared for the business transaction.
A nondisclosure agreement is important when dealing with high-profile clients. These clients will want you to keep the information they share with you confidential.
When you sign a nondisclosure agreement with a client, try to adhere strictly to the terms of the agreement. Otherwise, your customers will take serious legal action against your company.
#4. Leasing Property or Equipment
A leasing agreement is one of the types of contracts every entrepreneur should know. This type of contract is important if your business leases property or equipment.
You draft a leasing contract when you lease your equipment or property to someone for some time.
Leasing agreements outline important details of the transactions like the length of the lease, ownership, usage limits, maintenance of the property or equipment, and the agreed payment.
Drafting a leasing agreement before leasing your property or equipment helps to protect them and ensure that they are in good condition.
#5. Independent Contractors
Independent contractors are people who work for you but aren’t your employees. So, the terms of your partnership or working relationships will be entirely different from that of your employees.
And when you want to establish a partnership or business relationship with an independent contractor, you need to draft a contract that outlines the right and ownership you have over such a contractor.
The contract also needs to outline the contractor’s rights and obligations. When either of you isn’t meeting the contract’s terms, that will amount to a breach of contract. And the aggrieved party can take legal action against the other party breaching the contract.
#6. General Employment Contract
A general employment contract is also one of the types of contracts every entrepreneur should know. It’s a contract that is drawn when you are adding a new member to your team.
The general employment contract must be up to date, specific to every employee, and outlines the employees’ role, rights, obligations, and the company’s terms and conditions.
It gives details about the relationship between you (the business owner) and your employees. The contract should include the employment duration, the employment type (fixed-term, permanent, full-time, or part-time), and the employee’s compensation details.
It’s also necessary to include disciplinary and grievance procedures as well as how to terminate the contract. The general employment contract is sensitive. So, it’s advisable to get a lawyer to help you draft it.
#7. Indemnity Agreement
An indemnity agreement is one of the types of contracts every entrepreneur should know. It protects you and your business whenever you are transacting with a third party.
The contract is signed to prevent possible lawsuits should there be a breach of a specific agreement.
These are the 7 types of contracts every entrepreneur should know. When you understand these contracts and how they work, your business will be less vulnerable to legal actions. If you are unsure of how to draft one of these documents, it is best to seek competent legal advice from a practicing attorney.