Business Contracts: Peeling Back the Label to Understand What They Are and Why They Are Necessary

Posted by Bray Dohrwardt | May 08, 2024 | 0 Comments

Business contracts are vital for establishing and maintaining successful client, partner, and employee relationships. Each type of business contract has its unique purpose and requirements. In this blog post, I'll delve into some of the most common types of business contracts. However, it's important to remember that you may expose your business to necessary risks without proper legal advice. If you need help with your contracts, contact the Dohrwardt Law Firm.

Employment Contracts: These are agreements between an employer and an employee that outline the terms of employment, such as salary, job responsibilities, and benefits. They can be fixed-term or open-ended and are crucial for protecting the rights of both parties. It's essential to stay updated on changes to the law regarding the enforceability of non-compete agreements, as many states have outlawed them, and the Federal Trade Commission has issued a rule against them in most circumstances. However, these new rules can be complex, so it's always a good idea to consult your attorney.

Partnership Agreements: A partnership agreement is necessary to start a business with one or more partners. This contract outlines each partner's roles and responsibilities and the distribution of profits and losses. It also sets out the terms for resolving disputes and dissolving the partnership if necessary. These agreements can take on many different names depending on your entity structure. Whether yours is a general partnership, a limited partnership, a limited liability partnership, or even a member LLC, you should have your attorney assist you with distinguishing between the structures and help you draft the appropriate document.

Non-disclosure agreements (NDAs): NDAs are contracts that protect confidential information from being shared with third parties. This could include trade secrets, marketing plans, or other sensitive information. NDAs are often used when companies work with external contractors or consultants or when employees leave the company. All sides of NDAs should understand what is being agreed upon and how it may impact your business. Some artfully drafted NDAs can restrict your intellectual property rights and even your rights to work with similar parties in future opportunities. 

Sales Contracts: Sales contracts are agreements between a seller and a buyer that outline the terms of a sale. This could include the price, delivery date, payment terms, and warranties or guarantees. Sales contracts are essential for ensuring both parties understand their obligations and responsibilities.

Service Contracts: Service contracts are agreements between a company and a client that outline the terms of a service to be provided. This could include maintenance services, consulting, or other professional services. Service contracts are essential for ensuring that both parties understand the scope of work and the payment terms. As I have previously written about consulting agreements, parties should take care when entering into service agreements as they can lead to many issues. Always check with your attorney when entering into a service contract.

Franchise Agreements: Franchise agreements are legal contracts between a franchisor, the owner of a business concept, and a franchisee, the person or entity who agrees to operate a franchise business using the franchisor's trademark, products, and services. The agreement outlines the terms and conditions of the franchise relationship, including the rights and obligations of both parties, the payment structure, the territorial rights of the franchisee, and the duration of the agreement. Typically, a franchise agreement includes provisions related to training and support, quality control and standards, advertising and marketing requirements, and intellectual property rights. Franchise agreements are regulated in over twenty states, so parties will want to discuss their rights and obligations to ensure compliance. 

Referral Agreements: A referral agreement is a legal contract between two parties in which one party agrees to refer potential customers or clients to another party in exchange for a commission or other compensation. Referral agreements are commonly used in business-to-business (B2B) relationships and industries such as energy, real estate, finance, and healthcare. The agreement typically outlines the scope of the referral services, the payment structure, and exclusivity or non-compete clauses.

In conclusion, these are a few examples of the different types of business contracts that companies may need to use. Understanding the requirements and purpose of each type of contract is essential to ensuring that your company is protected and that your relationships with clients, partners, and employees are successful. As always, consult an attorney to discuss any contracts you use in your business. If you want to discuss your contracts or need help negotiating or drafting a contract, contact the Dohrwardt Law Firm.

The information provided is only for general information and is not meant to be legal advice. Information on this website, including third-party links, may be less up-to-date, so you should contact your attorney to discuss your situation. Third-party links are provided for convenience only and are not an endorsement by the Dohrwardt Law Firm.

About the Author

Bray Dohrwardt

As an accomplished attorney with over 22 years of experience, Bray Dohrwardt has built an impressive career, enabling business growth and commercial success for many companies from start-ups to large corporations and nonprofits. He focuses his practice on business law and energy law.


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Bray Dohrwardt is licensed to practice law in Minnesota and Texas. Please contact the Dohrwardt Law Firm to discuss how the firm can help you get business done.