What Are the Elements of a Business Contract?

A business contract is required when firms or enterprises enter into contracts with consumers or customers for the sale of products or services. At any point when the services, products or duties are being traded or being transacted for some money, it is advisable to enter into a business contract to preserve and protect the rights of all the interested parties. The major elements of a business contract are as follows:-

Description of Parties:- The description of the participating parties should be clearly mentioned in the contract. The description of the parties must include the name, title and the name of the company or the firm. All the required contact information like the contact numbers and email addresses of the parties must be added for communication purposes in a later course. In the case of description of a company, details about the place of incorporation may also be added. 

Consideration:- This clause mentions what the participants stand to gain from this contract or transaction. It may also mention the manner of payment i.e. Cash or NEFT or any other method of transfer of money. 

Terms and Conditions of the Contract:- This portion of the contract must list down all the rights and obligations of each of the participating parties. These terms and conditions can vary in accordance with the nature of the product or services being offered based on the nature of the business. For instance, this clause may contain information about the date on which the payment is due, the specific or special nature of product or service or work involved and the duration for which the agreement shall remain in effect. 

Delivery:- The nature or manner in which the products or services are delivered to the consumer should be covered in this clause. For instance, if the company or enterprise is selling goods, this clause must give details about the coverage of shipping, insurance and liability. Or for instance for services, the stages through which the consumer identifies the completion of company’s services must be mentioned in this clause. This clause must outline the exact manner of delivery. 

Legal Consequences:- This clause must mention details about the eventualities where either parties fail to fulfill their obligations as per the contract and thus stand in the breach of the terms and conditions. For instance, what happens in an event where the company or the enterprise fails to deliver the goods or does not provide the services as stipulated in the business contract. Additionally, what happens in an event where the buyer does not make the payments. Or in a situation where a third party is involved in the process of delivery the limitations of the legal consequences must be mentioned in addition to the period that may be allowed for correcting the situation before the contract is finally terminated. 

Amendments:- This section must contain details about whether firstly, the contract is subject to any amendments or not and secondly, if such is the case the formalities arising in the event of an amendment must be clearly laid down. 

Signatures:- Lastly, the parties must sign the contact along with the dates on which the contract was entered if they agree to the terms and conditions of the contract. Title and address of the parties must be noted for any future correspondences. 

Kinds of business Contracts 

The basic purpose of a contract is to create legal relationships between two consenting parties and stipulate obligations and duties as per the agreement.  There are 3 kinds of business contracts:-

General Business Contracts

These contracts majorly contain details about the structure of the business and the rights and obligations of the stakeholders. There can be a number of these contracts like: 

Partnership Contracts- Partnership contract provides for relationship between the partners and their obligations to each other and the business. 

Indemnity Contracts- Under these contracts one party agrees to indemnify another party for any harm that might arise from a specific act or contract. 

Non-disclosure Agreement-  A non disclosure agreement contains terms related to confidentiality of the transactions or the information provided as a part of the transaction and gives parties the right to sue the infringing party in case of a breach of the contract. 

Sales- Related Contracts 

These contracts discuss the details regarding the sale and purchase of properties (movable and immovable) and lay down the legalities surrounding transfer of title. Some common types of sales contracts are-

Bill of Sale:- An agreement between two parties stipulating the ownership of property, the title and type of property, consideration for which it is sold and the name of parties involved in the sale transaction. Bill of sale is used in order to identify the owner of the property.

Purchase order:- A purchase order is a contract that legally binds a party to purchase certain items or goods as per the pre decided price and stipulates the date on which the payment becomes due in addition to the date of delivery. 

Licensing Contract:- A licensing contract may be required where the businesses intend to sell a product. Through a licensing contract, businesses make profit by allowing another party to use it. The licensing contract may contain terms like reproduction rights, consideration to be paid, restrictions on the use and exclusivity of the product. It is a method to monetize the intellectual property owned by businesses. 

Promissory Note:- A promissory note is a legal document of an evidence of a loan stating the terms at which the repayment is to be made along with the interest rate in addition to the penalties associated with late payment. 

Employment Contracts

An Employment contract stipulates that terms and conditions during an employment. This contract may include the working hours, salary, bonuses and the grounds for termination largely. 

Non-disclosure Agreement:-  A non disclosure agreement contains terms related to confidentiality of the transactions or the information provided as a part of the transaction and gives parties the right to sue the infringing party in case of a breach of the contract. 

What Are the Terms for a Business Contract? 

The major terms in a business contract are as follows:-

Duties: - The respective duties of the parties that need to be performed by them need to be stipulated in the contract. 

Rights: - Simultaneously, the rights of the parties also need to be set out in the business contract including the right to sue. 

Dates: - Terms of a business contract can also include dates like the date of payment, the date on which the project is due to be completed, the date on which the project started and the date on which the project ended and other relevant dates. 

Payment: - The terms of a business contract must specify the dates on which the payment is due, the method through which the payment is to be made and the amount of payment.