Contracts Basics
Most businesspersons enter into contracts more frequently than they may realize. In almost all business dealings, any time you or your company agree to take some action or make a payment in exchange for anything of value, a legal contract has been created. For example, most bills of sale, purchase orders, employment agreements, and other common business transactions are legally enforceable contracts. Following is a discussion to help you understand the basics of contracts.
What is a contract?
A contract is a legally enforceable agreement between two or more parties that creates an obligation to do or not do particular things. The term "party" can mean an individual person, company, or corporation. No matter who the parties are, contracts almost always contain the following essential elements:
• Parties who are competent to enter into a contract. For example, a mentally disabled person could not enter into a contract. Minors can enter into contracts, but can void them in most cases before they reach majority age.
• Mutual agreement by all the parties; i.e., all parties have a meeting of the minds on a specific subject. Each party either promises to perform an act that the party is not legally required to perform, or promises to abstain from performing an act that it is legally entitled to perform.
Why should I use a written contract?
To be enforceable, some agreements must be in writing. The situations in which an agreement must be in writing can differ from state to state, but usually include transfers of real estate, sales of goods valued at over $500, and contracts that require more than a year to perform.
Your written agreement becomes your proof of what was agreed upon, and prevents someone from forgetting or changing the story later. Writing the contract down also makes the parties focus on the essential points, and come to a definite agreement.
Can and should I write my own business contracts?
Yes, you can write your own