What is a contract, and does my business need one?

What is a contract, and does my business need one?

As a business owner, you need to protect yourself and your company. A contract is one way to do this. A contract is an agreement between two or more people or entities. Does your business need one? Businesses always need contracts at one time or another.

If you’ve started a business, you likely already have several contracts in place. Did you need insurance for your building or office space? There is an agreement in place between you and your insurance company. You agree to pay a premium in exchange for a service they agree to provide. Did you have to file business incorporation documents with your state? You made an agreement with the state to operate your business within the parameters set forth by the law in exchange for a business license which also affords you some securities under the law.

However, if you’re a business owner, you want to make sure your business is protected when making agreements with other individuals or businesses. There are so many factors to a contract such as:

  • Detail Responsibilities: Having everyone party’s responsibilities listed in a contract removes windows of confusion; everyone will know what is expected to be done and who should be completing each responsibility.
  • Bind Obligations: A contract puts in place and helps alleviate the worry of one party trying to back out of responsibilities which could put a strain on the relationship.
  • Establish Deadlines: With a contract, the time frame for each obligation can be set so all parties are held accountable. How the deadline is met falls on the respective party to figure out, but the contract eliminates combatting excuses or falling behind anywhere.
  • Secure Payment: When outlining an agreement, payment information should be included – the amount, how to be paid, and when so there is no room for error, and services rendered are compensated appropriately.
  • Recourse for Business Relationships: For cases when a relationship goes sour, the terms outlined in a contract can make the process smoother as they often contain details on how to dissolve the relationship peacefully.
  • Clear Jurisdiction: If a dispute arises between parties in different locations, the contract specifies which jurisdiction applies for any legal action.
  • Court Costs/Attorney Fees Provisions: Simply stipulating reasonable attorney fees in a contract may motivate some clients to follow through with obligations as they will realize the financial expense of taking legal action could be worth the cost should they not hold up their end of the bargain.

A contract helps to clearly define these things so that all parties feel like their interests are being protected.

Many business documents and basic contracts can be found online and can be completed without the need for an attorney (and attorney fees). The more complicated the transaction, the more likely you will want to involve an attorney. While a contract may be between the two parties, it is still bound by laws of the jurisdiction under which the contract is being made. Some business owners elect to use a lawyer on an “as-needed” basis. They utilize their business attorneys as “legal coaches” wherein the business owner completes documents and contracts and then requests their attorney review the documents and provide feedback.

If you believe you need to talk to an attorney regarding the setup of a business, business litigation, contract formation or litigation, or any other commercial or corporate law needs, contact our office at 330-922-4491 or through our contact page to schedule a free, initial consultation.