Contracts are an everyday part of life for most businesses. Contracts probably touch upon most of the business relationships you have with customers, vendors and business partners. Because contracts are such an important part of most business transactions, and can greatly impact the success of a business, they are important for business owners to thoroughly understand.
Contracts are agreements that define the obligations of the parties to a business transaction to one another. Contracts generally govern the sale of goods and services. To be valid, a contract must contain seven elements including:
- Offer – the first element of a contract is an offer. An example could be an offer for goods or services.
- Acceptance – the second element of a contract is acceptance. The offer must be accepted. The acceptance must mirror the offer and usually indicates a willingness between the parties to enter into an agreement.
- Consideration – consideration is a technical and legal requirement that can be complex. It requires that the parties provide something of value but does not always refer to the exchange of money.
- Legal capacity – both parties must have the legal capacity to enter into the contract. This means they must be of legal age to enter a contract or that there must not be any undue influence in the formation of the contract.
- Intent and Legality – the next requirement is that both parties must have the intention to enter into a contract. Additionally, the subject matter of the contract must be legal or the contract will be considered invalid.
- Form – contracts do not necessarily have to be in writing to be valid if the requirements for a valid contract are met, however, it is a good idea to have all contracts in writing. This is also easier to prove in circumstances of a breach of contract.
Contracts protect the interests of the business owner and their business. Business owners should know how to properly execute a contract and how to enforce a contract. They should also be familiar with what to do in circumstances of a breach of contract as different remedies may be available, depending on the situation. Contracts impact most of a business owner’s daily activities, which is why understanding contract and business law is essential to understand as a business owner.
