Whether you own a small business or are responsible for leading important projects in a big corporation, signing and reviewing the ideal type of contract is of the utmost importance. Since there are many types of contracts involved in conducting business and working in a professional discipline, it is necessary to learn about the different types of contracts and the clauses involved.
Here are the different types of business contracts that every entrepreneur and business owner should know.
1.Nondisclosure Agreement
Commonly known as an NDA, this type of contract signifies and establishes your formal collaboration with another party. It can be with vendors, shippers, clients, employees, or a third party connected to your business. This contract states that the business conducted between both parties should be confidential and protected.
In case the other party leaks or discloses confidential data, you are eligible to take legal action against them. An NDA can either involve both parties or can be enforced by a single entity, depending on the nature of business, needs, and secrecy. Businesses dealing with new projects, potential partnerships, and commercial plans often enter into an NDA with their partner.
2.Partnership Agreement
As the name suggests, this contract binds two parties into a short or long-term commitment. The entities that form business partners come to an agreement and consider each other’s needs and interests before drafting a partnership agreement. It involves the best interests of both parties and mutual understanding. Signing a partnership agreement has become crucial today because many inexperienced small businesses are left vulnerable, which can push them into a financial crisis.
This agreement also outlines the clear roles of both parties and keeps the other from interfering. In turn, this keeps the operation smooth and both parties are satisfied with the outcomes. Limited partnership agreements are also quite popular among small business owners and involve the parties that have limited liability.
3.Employment Contract
This contract lets you recruit and hire employees for particular tasks and positions. Basically, HR managers are responsible for drafting employment contracts as they are well aware of the company’s clauses, terms, and conditions. As suggested by the legal experts at Contract Hound, prepare a contract checklist to meet the needs of the company and the employee to be hired. Furthermore, the contract includes details related to the employee’s joining date, the payroll, the tasks involved, bonus, number of granted paid leaves, and the working hours.
4.Promissory Note
Commonly known as a note payable, a promissory note contract expects the party to pay back the full amount they owe. It contains every detail related to the financial aspects such as the interest rate, total amount, and the payment due date. Promissory notes are used by both borrowers and lenders as written proof. As soon as a client takes a loan, they enter a promissory note agreement. The financial services discipline files several promissory notes as compared to other industries. Use a legal note payable as a receipt to receive money from your lenders.
5.Licensing Contract
If you develop a new product or service and wish to sell it commercially, you will need a licensing contract. This gives you the right to sell your product to another entity or the mass public in general. In turn, you can legally earn profit from the sales you make. Typically, such contracts come with clauses reinstating the restrictions, amount to be paid for the product or service, and exclusivity. Depending on the type of business and invention, licensing contracts can be customized. If you own intellectual property, this is the best way to earn profit from it.
6.Bill of Sale
This agreement states the transfer of assets, services, or ownership to another party. This legal document also proves that both parties have no objection to this transfer and will refrain from questioning the same. As a business owner, if you want to transfer ownership or sell goods to another party or a client, you should draft a Bill of Sale. In some cases, this agreement also allows the involved parties to sell, transfer, or exchange gifts or services. If you do sell your products, goods, or services to a client, a Bill of Sale can act as a receipt or proof of sale. This also ensures timely payments.
If you are starting a new business, you should learn the differences between business contracts and decide on one that is relevant to your business or project. With so many types of contracts available and involved, it may seem overwhelming at first; however, it is nothing to be scared about. To get the hang of it, consult a professional until you can read, check, and verify the contract clauses on your own.