Companies of all sizes enter into contracts for various reasons. These contracts may exist with individuals and firms who are external to the company, but they may also exist internally between the company and its own subsidiaries or employees. Certain types of contracts are routinely executed, whereas other kinds of contracts are only needed every now and then or perhaps even just one time during a company’s existence. Although some businesses are likely familiar with the usual suspects, for those who are still learning the ropes, here is a rundown of some of the most common business contract types:
The broadest category of contracts are the general business ones, and this can encompass a whole range of agreements. One particular area that these contracts address relate to the structure of the actual company. For example, when a company is founded there may be a partnership agreement or limited liability company agreement, which will explain the relationship of the owners of the company including their roles, responsibilities, obligations, financial contributions, and percentage of earnings.
In addition to the contracts that explain the company’s structure, once a company is established, it will frequently require the goods and services of other firms to manage its operations. Thus, another broad category of business contracts is service-related agreements, which are the agreements a company will enter to retain the professional services rendered by external individuals or firms. This may include vendors, suppliers, construction projects, IT services, licensing, accounting services, or attorney engagement, among many others. Basically, when a company needs the advice, expertise, good, or service that is offered by a particular professional, a contract is generally executed to clarify the nature of the services and payment to be exchanged.
For many companies, running a business requires land, office space, and equipment. It does not always make sense to purchase these items, as that can be cost prohibitive. As a result, a lot of companies will end up entering into a contract to lease any warehouses or office spaces that they need for their operations. Companies may also need to rent vehicles or other heavy duty equipment for shipping and distribution. In some cases, specialized equipment may be needed for a short or long period of time, which may also necessitate some sort of contract for its usage.
Finance and Sales Matters
Depending on the industry a company serves, finance or sales contracts may play a huge role in a company’s contract portfolio. A lot of companies will have to borrow money at some point, so this will require the execution of a security agreement to identify collateral to receive the loan. Other companies may actually be the ones lending money in which case they would still be seeking a contractual agreement to ensure they are repaid with interest.
Of course, a lot of companies are engaged in the sale of different types of products, which normally requires a purchase order and a bill of sale to document that a transaction is in process and completed. These sales-related contracts ensure that both sides receive that for which they bargained.
Some of the more complicated contracts companies will encounter are those relating to employment matters. Companies often hire employees at will meaning there is no contract in place and either side may decide to terminate the employment at any time. However, a lot of industries still rely on employment contracts to clarify their employees’ roles, salaries, and benefits. And, for some companies, it may be necessary to utilize non-compete agreements to prevent employees from using company data elsewhere, as well as non-disclosure agreements to protect confidential company information.