Business contracts form the basis of most business relationships and outline the agreement between the parties and the rights and obligations of the parties to one another. Because business dealings can sometimes result in a contract dispute, it is helpful for business owners to be familiar with how to protect themselves with a valid business contract and what to do if a contract dispute crops up.
What to include in a business contract
The components of a business contract, and what to include in a business contract, are helpful to understand and be familiar with. Important elements of a business contract include:
- Offer – for a contract relationship to be formed there must be an offer of some goods or services; the offer should be as specific as possible in nature.
- Acceptance – the second element of a valid business contract is acceptance of the offer. The acceptance must mirror the offer to ensure the parties have the same understanding of their agreement.
- Consideration – consideration is the exchange of something of value between the parties to make the contract valid. This can include money but could also be a promise to take a certain action or inaction.
- Mutuality – mutuality requires that both parties are bound by the terms of the contract and specifically assent to them.
- Capacity – both parties must have capacity to enter into the contract and understand that they are entering into one. This usually requires that they are legal age to enter into a contract, usually 18, and are of sound mind. It is also important there is no duress, undue influence or fraud in the formation of the contract.
- Legality – in addition to meeting capacity and age requirements for a contract to be considered legal and valid, the subject matter of the contract cannot be illegal in nature. If the subject matter of the contract is not legal, the contract may be considered void.
A business contract is an important part of any business relationship. For that reason, business owners and those they are contracting with should be familiar with the requirements for a valid business contract.