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A business contract creates and governs the contractual obligations you and other parties have to one another. It is crucial that this contract clearly details your commercial relationship and contains provisions to ensure that this relationship functions effectively. This article will outline the key contract terms that every business agreement should have. 

Key Terms of a Business Contract

Although each contract will differ to cater to your particular circumstances and services, there are specific issues which you should address by terms in your business contract. 

1. The Contracting Parties

Any business contract should contain a term that clearly describes the individuals or businesses that are parties to the contract. Contracting parties have certain rights and obligations that other individuals do not have. It is common practice for this to be the first clause of the commercial contract.

2. The Contractual Term

This provision would include both the commencement and termination date of the agreement. Such a clause ensures that the parties are aware of the period they have to uphold their contractual obligations. 

3. Contractual Obligations

Your contract must clearly state the responsibilities that you and the other contracting parties are taking on. For example, a contract for the sale and purchase of coffee for a cafe would include:

  • a description of the goods the supplier is to provide. For example, the type of coffee beans and the quantity of bags of coffee for each delivery;
  • how the supplier will deliver these goods, such as by courier once a week on Monday mornings; and
  • an outline of the payment for these goods. This outline would include the price of each shipment of coffee beans, how often you will make this payment to the supplier, and payment method. 

Before you sign any business agreement, ensure that you can perform your contractual obligations for the contract term. Failure to do so will constitute a breach of the contract.

4. The Rights of the Parties

Although contracting parties take on obligations under a business contract, you are also entitled to receive certain rights and benefits. 

For example, if you enter into a contract to supply goods, you have a contractual right to payment in the manner specified in the contract. Likewise, as the purchaser of goods, you are contractually entitled to be delivered these goods at the requisite time and in the specified quantities. 

5. Contract Variation or Amendment

It is not uncommon for parties to change their obligations once they have already signed the contract. 

You may wish to specify a process for how contractual terms and obligations should be changed or varied. Some business contracts, for example, contain a ‘no oral variation’ clause. This provision specifies that any contract changes cannot occur orally and have to be put into writing. 

6. Assignment of Contractual Obligations 

An assignment is when a party to a contract transfers, or assigns, their contractual responsibilities to a new person. This new person then replaces the assignor as a party to the contract.

A business contract should specify whether the parties are entitled to assign their contractual obligations. Furthermore, if an assignment is available, a process should be detailed about how this should occur. For example, an individual may only assign their responsibilities if they have received the other contracting parties’ consent. 

7. Dispute Resolution 

Throughout a contract term, it is not uncommon for issues between parties to arise. It is best practice to outline how dispute resolution will resolve these issues, maintain business relations and avoid court proceedings. 

A dispute resolution clause should include:

  • a definition of a ‘dispute’;
  • how the dispute resolution process is to be triggered. For example, one party may have to provide a written notice that specifies the nature of the dispute to the other contracting parties; 
  • the rights and obligations of the parties in the event of a dispute;
  • the process of dispute resolution that will be employed, such as mediation or arbitration; and 
  • an acknowledgement that the resolution should be fair and catered to reflect each party’s interests and circumstances. 

8. Termination

There may be instances where one of the contracting parties wishes to or is entitled to cancel the business contract. 

A termination clause should include:

  • the grounds for termination, such as a breach of an essential term of the contract; 
  • the protocol a party should follow. This protocol may include providing the other contracting parties with a written notice specifying cancellation in a certain period; and 
  • what is to happen in the event of a cancellation of the contract. For example, a party may have to return certain materials to another party to the contract.  

Form of a Business Contract: How to Express the Contract Terms

A business contract can take many forms. You can express the contract’s terms orally, and specific terms may be implied from the contracting parties’ conduct.

However, it is best practice to expressly articulate the terms of your business agreement in a written contract, rather than relying on verbal contracts. Expressing the terms in writing ensures that all contracting parties’ responsibilities are clearly stated and easily referred back to, should a dispute as to contractual obligations arise. A written contract also provides that all parties can read over the agreement to ensure that it does not contain any unfair contract terms.

Key Takeaways

Each contract that you enter into should cater to your particular circumstances and commercial relationship. However, there are key matters, such as the term of the contract or the manner of dispute resolution, that your business contract should always address. Before signing the written agreement, you must thoroughly discuss these critical issues with any potential contracting parties and read the fine print. 

If you are unsure about what terms your business contract should contain, contact LegalVision’s contract lawyers on 0800 005 570 or complete the form on this page.

FAQs

What are the terms of a business agreement?

The terms of a business contract are the obligations that contracting parties take on for the contract’s duration and the rules that govern their commercial relationship.

What are the different types of business contracts?

Most business contracts fall into three categories; general business contracts, sales-related contracts, and employment contracts. These types of agreements differ from standard form contracts that you cannot negotiate.

What are the elements of a business contract?

A business contract is like any other contract and requires certain elements to be binding under contract law. These elements are: a clear offer that has been unequivocally accepted; valid consideration; an intention to create legal relations; and certainty as to the terms of the contract.

What terms should I include in a business contract?

A business contract should include terms addressing: who the contracting parties are; the term of the contract; the contractual obligations and rights of the parties; how the contract should be varied; whether an assignment is available; and the process for terminating the contract.

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