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Business ownership involves much more than analyzing your finances and keeping profits high. You also need to navigate a handful of legal agreements to keep your business legal. Contracts basically lay the groundwork for every successful business, ensuring everything from recruitment to business partnerships runs smoothly and every party understands their roles and obligations.
Both parties must agree to stipulations in a business agreement formalized in an official contract. However, not all contracts are the same. Learn about all the different types of business contracts/agreements below.
Bill of Sale
This document transfers the ownership of a piece of property (real estate, vehicle, business asset) from the seller to the buyer. The U.S.’s judicial system recognizes this as a way to show that the seller has indeed sold the said property to the buyer.
They’re super important in real estate transactions and when selling business assets, like inventory or machines. The main elements of these contracts are:
- Names of parties involved (individuals or business entities)
- Item description
- Selling date
- Purchase price
- Terms of payment (paid fully, paid in installments, or special payment arrangements)
- Warranty or “as-is” or “with all faults” clause
- Signatures
Some bills of sales may also have notarizations, which means having a public notary verify the identities of both the buyer and the seller to legally validate the transaction. High-value transactions like massive business asset transfers and vehicle purchases usually require notarization.
Partnership or Joint Venture Agreements
A joint venture is formed when two or more partners collaborate to work on a business project or shared goal. The joint venture agreement establishes partnership terms that help prevent misunderstandings and subsequent disputes between involved parties. The agreement specifies each party’s responsibilities and decision-making power. It also explains how profits will be distributed among partners.
Remember, you don’t have to enter into joint venture agreements to form joint ventures. Also, these agreements don’t have to be in writing to be legally valid. Still, it’s a good idea to have a written agreement to avoid future conflicts and litigation issues.
Employment Agreements
Employers have a responsibility to maintain safe workplaces for their workers and comply with all federal and state employment statutes.
Employment agreements/contracts protect rights and define the responsibilities of both employers and employees. While written employment agreements aren’t a legal requirement in the country, employers must still provide information about employees’ rights and benefits to relevant government agencies like the U.S. Department of Labor (DOL) or the Employment Standards Office.
The business contract establishes the employment terms and conditions for each worker. It specifies employee job titles and descriptions along with their work hours, wages, benefits, and duties. Understanding the employer-employee relationship allows both sides to perform their roles effectively.
That said, there are many types of employment agreements. The most common ones include:
- Permanent contracts
- Full-time contacts
- Part-time contracts
- Fixed term contracts
- Casual employment contracts
- Freelance employment contracts
It’s also worth noting that employers don’t always have to offer written contracts. They can also offer them in:
- Verbal form: An employer can agree with an employee on their terms of employment through a verbal agreement. Unsurprisingly, these contracts are harder to legally enforce unless the two parties document or record this agreement.
- Electronic contracts: These are essentially written contracts in digital form sent via e-mail or social platforms. Like written agreements, employers and employees must append their digital signatures to make them legally binding.
- Implied contracts: Implied contracts are formalized by an action you and the other party can interpret as a “formal” agreement. A good example is an employer shaking an employee’s hand to signal the start of their working relationship. In some cases, employees begin working for employers without any form of agreement.
Licensing Contract
Did you know that intellectual property is one of the hottest-selling commodities in the world? For instance, a manufacturing company (licensor) might sell its patented technology to an individual or business (licensee). Other examples of intellectual property include brand names and logos (trademarks), software, copyrights, franchises, and manufacturing rights.
A licensing contract outlines the conditions and rights granted to the buyer for using the intellectual property. Here, you’ll find details on the contract’s validity, usage limits, and renewal options. Customers can also familiarize themselves with regulations on sub-licensing and distribution in this document.
With the content creation economy set to be worth a whopping $480 billion by 2030, licensing contracts are gaining mainstream attention.
Independent Contractor Agreements
Independent contractors make up about 7.4% of the United States workforce. It’s quite common for businesses to outsource to independent contractors for various functions and services.
An independent contractor agreement is almost like an employment contract, except it’s between an employer and a contractor. Like an employment contract, independent contractor agreements also stipulate the terms of service. Think along the lines of:
- Names and details of the parties involved
- Independent contractor status
- Scope and duration of the work
- Nondisclosure agreements
- Dispute resolution process
- Termination clause
Promissory Notes
A promissory note is a lesser-known business contract that is, in essence, a formal IOU.
Usually, it’s between a buyer and seller or a lender and borrower. It’s a simple contract containing only the payment terms, interest rate (if applicable), and the consequences for defaulting or late payment.
Nondisclosure Agreements
This contract reserves your right to seek legal action should the other party reveal or misuse sensitive information.
This info can be everything from employee data to trade secrets. Fines, severing of business relationships, restraining orders, and criminal charges for disclosing trade secrets are detailed under the Defend Trade Secrets Acts (DTSA)
Business Contracts Made Easy
If you already have the primary company contracts at your fingertips, running your business should be a breeze. Ensure a reputable lawyer reviews all your contracts before you sign them because some shady business partners might hide unethical clauses that may compromise your business. Also, ensure you have all your contracts in writing and print several contracts.