The Importance of Solid Contracts in Business: Insights from The Contract Shop

As a business owner, keeping careful records of your agreements with your clients and customers is essential. Creating business contracts for each of your clients or customers can help you avoid disputes, protect your business interests, and establish trust with your clients and customers. Solid contracts can help your business save time and money while improving client and customer relationships. Read on to learn how to create a contract that provides legal protection and aligns with your business goals.

What is a business contract?

A business contract is a legally binding document between two or more parties. Contracts define the scope and timeline of business agreements, protect businesses from legal disputes, and outline each party's expectations, responsibilities, and legal obligations. You should draft a contract whenever your business agrees to provide products or services to a client or customer in exchange for money. Drafting a contract that dictates how you conduct business with your clients or customers protects your business relationships and helps you avoid liabilities.

Why do businesses need solid contracts?

Using contracts to document your business agreements creates a record that you and your customers or clients can reference when disputes or questions arise. Contracts encourage efficient communication , provide structure and clarity to your projects, ensure legal protections, and help all parties understand what is expected of them. Contracts also help you establish trust with your clients, resolve disputes, and protect yourself and your business from liabilities.

Establish trust

Using a solid contract when you conduct business establishes trust between your business and your clients or customers. Drafting a contract that clearly outlines the scope, timeline, payment terms, and expectations of your agreement with a client creates transparency and shows your clients that your business is approachable and trustworthy.

Resolve disputes

Having a contract in place can help you quickly resolve disputes that may occur while working on a project. A contract that includes a dispute resolution clause that uses unambiguous language to clearly describe how you will approach and resolve disputes and misunderstandings with your client can help you maintain strong client relationships. When your clients and customers feel that their concerns are being heard and addressed fairly, they will be more likely to trust your business and continue to use your services, which will help you ensure customer satisfaction and increase customer loyalty.

Types of business contracts

There are multiple types of contracts that you can use for your business. Each contract fulfills a specific purpose and outlines the expectation of a legally binding agreement between your business and another party.

Employment contracts

Employment contracts are agreements between a business and its employees. An employment contract should include a description of the employee's role, the employee's duties, the duration of the contract, the compensation and benefits that the employee will be given, and the reasons that an employee's employment can be terminated.

Independent contractor agreements

Independent contractor agreements are agreements between a business and a freelance worker. An independent contractor agreement should include the scope of work, project due dates, payment terms, and deliverables. An independent contractor agreement should also include a clause that specifies that the freelancer is classified as an independent contractor rather than an employee. There are strict federal standards that govern how businesses work with independent contractors. For instance, businesses are not responsible for their independent contractors' tax obligations. Businesses also can't prevent independent contractors from working with other clients during their agreement or dictate how, when, or where they complete their projects.

Non-disclosure agreements

Non-disclosure agreements (NDAs) are legal contracts that ensure a confidential relationship between two parties. An NDA helps protect a business's trade secrets and confidential information by prohibiting employees and independent contractors from sharing private information with third parties or the business's competitors.

An NDA should clearly define the criteria that are used to determine whether information that is provided to a party is considered "confidential" and explain the circumstances under which information is not considered confidential, such as when the business makes the information available publicly or when the party knew the information before entering into the agreement. The enforceability of non-disclosure agreements varies from state to state, so it's best to work with an attorney who is licensed in your state to determine the terms that can be included in your NDAs.

Non-compete agreements

A non-compete agreement is an agreement that prevents a business' employees and independent contractors from working for a business' competitors once they leave the business. The legality of non-compete agreements varies from state to state. In order to be enforceable, a noncompete agreement must clearly state: The period during which an employee or independent contractor cannot compete. Typically, a non-compete agreement can be enforced for up to two years. Noncompete agreements that extend beyond two years or do not include a time span are often legally unenforceable. The geographic location (city, state, or region) where an employee or independent contractor cannot compete. Noncompete agreements that include an overly broad geographic restriction or do not specify a geographic restriction are often legally unenforceable. The competitors that an employee or independent contractor cannot work for during the noncompete period.

Indemnity agreements

Indemnity agreements, also known as hold harmless agreements or release of liability agreements, prevent a customer or client from holding a business accountable for any burdens, losses, or damages incurred while using the business' services.

Final thoughts

For your business’s contract to be enforceable, it must be legally sound. You can use an attorney-drafted template, like the templates provided by the contract shop , as a starting point to create legally binding business contracts. Once you've finalized your contract, we can help you implement your contract and any other agreements into your systems so your business is legally protected.

WRITTEN BY: NADIRA BOSTIC