42 Common Types of Business Contracts: Your Comprehensive Guide to Navigating the Complex World of Legal Agreements
Navigating the world of business contracts can be a daunting task. With a myriad of different types of agreements, each with its own unique terms and conditions, it's easy to feel overwhelmed. Whether you're a seasoned business owner or just starting out, understanding the ins and outs of these contracts is crucial to protect your interests and ensure smooth business operations.
Without a solid understanding of these contracts, you could find yourself in a bind, facing legal disputes, financial losses, or even damage to your business reputation. The complexity of these agreements can make it difficult to know if you're making the right decisions, and the stakes are high.
That's where our comprehensive guide to the 42 most common types of business contracts comes in. Prepared by our Maryland business attorney, this guide will help you navigate the complex world of legal agreements, providing clear, concise explanations of each type of contract, from employment agreements to licensing contracts. With this knowledge, you'll be able to confidently enter into agreements, knowing that you're making informed decisions that will benefit your business in the long run.
Business Agreements: 42 Types You Should Know
In the world of business, agreements serve as the backbone of many interactions and transactions. They provide a legal framework that dictates the terms of a relationship, ensuring that all parties involved understand their rights, responsibilities, and the consequences of not meeting these obligations.
With a staggering number of business agreements, it's essential to familiarize yourself with the most common ones. These range from employment contracts and non-disclosure agreements to licensing contracts and purchase orders. Each type of agreement serves a unique purpose, tailored to specific business scenarios. By understanding these, you can navigate the business landscape with confidence, ensuring your interests are always protected.
Let's explore.
1. Amendments
Contract amendments make changes to an existing contract. The amendment may be designed to correct or clarify the original contract terms. Because an amendment alters the original terms, pay close attention to what the new terms will be after signing the amendment.
2. Bill of Sale
A bill of sale is a written agreement that confirms the purchase of property by a buyer from a seller. When signing a bill of sale, ensure that make sure the documents contain have the correct information and the terms of sale, including a description of the item, the purchase price, the date of the transfer, any warranties by the seller, and any conditions attached to the sale.
3. Enterprise Service Agreement
A contract between a vendor and a company to allow the company unlimited access across the company to the vendor's services. Software vendors often use these contracts to provide customers unlimited access to software for their company instead of using individual license agreements. Watch closely for the conditions and restrictions for the use of the services when signing an enterprise service agreement.
4. Franchise Agreement
A franchise agreement is a contract whereby a franchisor gives a franchisee the right to operate a business or offer goods and services for sale that are associated with the franchisor's trademark. The franchisee makes a one-time payment or periodic payments for the right to use the trademark. Pay close attention to all payment terms, requirements to operate the franchise, and the territory of operation.
5. Employment Agreement
An employment agreement is a binding contract between an employer and employee detailing both parties' rights, responsibilities, and obligations regarding employment. When signing employment contracts, pay close attention to the wages, benefits, and whether the employment is "at will" or the employer must have specific reasons to terminate employment.
6. Employee Invention Assignment and Confidentiality Agreement (EIACA)
A contract that assigns ownership of anything an employee creates or invents during the course of employment to the employer, and the employee agrees to maintain information confidential. When signing an Employee Invention Assignment and Confidentiality Agreement, pay close attention to the definition of inventions, non-compete clauses, and confidentiality obligations.
7. Inbound Agreement
An inbound agreement grants a party (the licensee) specific rights to use a party's (the licensor) intellectual party. When signing inbound agreements, carefully read the terms regarding exclusivity, payment terms, termination rights, and the right to sublicense.
8. Indemnity Agreement
An indemnity agreement holds a party harmless for any loss, damage, or financial responsibility for a specific product, service, event, or agreement. When you sign an indemnity agreement, you should look for exceptions, the scope of coverage, duration, limitations, and maximum liability.
9. Independent Contractor Agreement
An independent contractor is someone who works for themselves. An independent contractor agreement is a contract between the contractor and a client or customer defining the terms and scope of work to be performed. Beware of terms related to liability for injuries and damages, insurance requirements, ownership of work product, and confidentiality.
10. Influencer Agreement
An influencer agreement is a legal contract outlining the terms and conditions between a company and an influencer for the influencer to promote the company's services or goods. When signing an influencer agreement, pay close attention to the deadlines, expectations, and scope of the task.
11. Photography Release
A photograph release is a consent form outlining how a party may use a person's photograph/likeness or a party's brand, artwork, or other property. Pay close attention to restrictions of use and the terms covered by the release.
12. Master Service Agreement (MSA)
A master service agreement is a contract between at least two parties that outlines the rights, responsibilities, and obligations governing the parties' current and future business . When signing an MSA, watch for exceptions to the agreement, termination procedure, and intellectual property ownership clauses.
13. Non-Disclosure Agreement (NDA)
A nondisclosure agreement involves a legally binding agreement not to disclose confidential material or information with restricted access. When drafting a nondisclosure agreement, you should clearly define the information subject to the agreement and the penalties for violating the agreement.
14. Non-Compete Agreement
A non-compete agreement is a binding contract between an employee and employer whereby the employee promises not to compete with the employer after employment is terminated. Terms that you need to read carefully include the duration, geography, scope, and damages of the agreement.
15. Order Form
An order form is a document that details a transaction between a buyer and a seller. An order form may also be known as a purchase order. Key elements of an order form to review include a description of describe the items or services, purchase price, delivery terms, and cancellation terms.
16. Partnership Agreement
A partnership agreement defines the relationships and responsibilities of two or more parties involved in a business. Partnership agreements should contain basic elements, including the partnes' information, capital contributions, ownership interest, profit and loss distribution, management, voting, dissolution, tax obligations, and adding/removing partners.
17. Property or Equipment Lease
A property and equipment lease is a business contract that allows one party (the lessee) to use the property of another party (the lessor) for a specific period in exchange for regular payments. These business contracts are used for everything from vehicles and business equipment to houses and boats. When entering into a lease agreement, pay close attention to the duration, payment terms, terms of use, and damage clauses.
18. Purchase Order
A purchase order is a legally binding agreement between a buyer and a seller. The buyer is committing to purchase the products in the quantity and price listed in the purchase order. Pay close attention to cancellation terms, delivery requirements, and payment terms.
19. Renewal Order Form
Renewal order forms are agreements to renew a service or product agreement, such as a subscription or automatic product delivery. Watch for terms related to cancellation, what happens at the end of the renewal, and increases in price.
20. Request for Proposal (RFP)
A request for proposal is a business document that announces a new project. The request asks for prospective contractors to submit bids for completing the project. Pay close attention to the scope of services needed and the requirements for the job.
21. Security Agreement
A security agreement provides a lender an interest in property or assets to secure a debt or loan. Read the agreement carefully to note the repayment schedules, default terms, obligation to maintain collateral, and conditions of default.
22. Statement of Work (SOW)
A statement of work is a legal agreement describing the scope of work being provided. It also defines the payment terms, project deliverables, work location, and timeline. It is important to review Review the responsibilities of all parties, the level of service expectations, the project size, termination conditions, and the schedule/performance period.
23. Security and Privacy Addendum
A security and privacy addendum is a legal agreement that supplements an existing, current, or future business contract. It outlines the duties and responsibilities between a disclosing party and a receiving party regarding personal data and customer data. Parties should pay close attention to the requirements for securing data and maintaining privacy, in addition to the limitation of liability and indemnity.
24. Termination Notice
A termination notice is a written notification from an employer to an employee telling the employee they are fired or laid off from their current position. The termination notice should include the reason for termination, benefit details, company property information, and payment of final wages.
25. Terms of Use
The terms of use agreement is a legal document that explains the rules for using a website, product, or service. The agreement is legally binding if it is lawful, reasonable, and clear. The user must also agree to the terms of use. Pay close attention to the user rights and responsibilities and the disclaimer and limitation of liability clauses.
26. Transfer Agreement
Transfer agreements are legal contracts conveying ownership from one party to another party. They are used to transfer ownership of tangible assets, but can also be used to transfer ownership of intellectual property and other intangible assets. Things to look for when signing a transfer agreement include assumed liabilities, representations, warranties, and remedies for breach.
27. Vendor Service Agreement
Vendor service agreements are business contracts that establish a business relationship between parties. The parties agree to exchange goods and services in return for compensation. The legal document should describe the service or good, the compensation, timing, termination, and how to settle disputes.
28. Warranty
A warranty is an assurance, promise, or statement by one party regarding the quantity, quality, condition, nature, or accuracy of facts regarding a good or property. For contracts, a warranty must be honored, or the party making the promise can be sued for breach of contract.
29. Beta Agreement
Beta agreements are business contracts between a company testing a new product and individuals testing the product (beta testers). Pay very close attention to the terms of nondisclosure, privacy, and requirements for testers. Also, testers should pay close attention to the terms regarding indemnification and liability.
30. Memorandum of Understanding (MOU)
A memorandum of understanding is an agreement that outlines plans for common action between parties, typically with business transactions. Closely review an MOU to determine if the elements are present to make the document legally binding, including an offer, acceptance of the offer, legally binding intention, and consideration.
31. License Agreement
Licensing agreements are legal contracts that give a party the right to use another party's property according to specific conditions. When reviewing a licensing agreement, look to ensure the agreement includes ownership, payment, exclusivity, quality assurance, subsidiary licensing, and, sub-agreements.
32. Distribution Agreement
A distribution agreement is a legal contract between your company and distributors detailing how your products will be marketed and sold. It also grants the distributor the right to market and sell your products. You should look Look for terms related to exclusivity rights, territory, reporting requirements, restrictions for marketing, and termination agreements.
33. Joint Venture Agreement
A joint venture agreement is a contract whereby two parties agree to combine their resources to achieve a common objective. When signing a joint venture agreement, you should carefully review the duties and obligations of each party, the profit and loss allocation, how decisions are made, confidentiality and noncompete agreement, and dissolution terms.
34. Consulting Agreement
A consulting agreement is a contractual agreement that describes a working relationship between the parties whereby the consultant provides the company with specific services. The agreement outlines the professional relationship between the parties, including the duration, payment, and scope of services. When signing a consulting agreement, make sure the agreement contains a confidentiality agreement and addresses intellectual property rights.
35. Manufacturing Agreement
Manufacturing agreements are business contracts that outline the rights and responsibilities of the parties for the production of goods. When drafting the agreement, you need to include clear terms about who owns the intellectual property rights to the design and process involved in the manufacturing process.
36. Service Level Agreement (SLA)
A service level agreement sets the terms for a service provider and a client. The agreement should include the standards of service, type of service provided, payment terms, and steps for reporting and resolving problems with service.
37. Outsourcing Agreement
An outsourcing agreement is a contract between a company and a service provider outlining the service provider's promise to perform specific services for or on behalf of the company for compensation. It is crucial that the contract includes terms regarding confidentiality, indemnification, liability insurance, remedies for breach of contract, and terms of dissolution.
38. Marketing Agreement
Marketing agreements are business contracts that outline the expectations and obligations of the parties of a company with a product or service to sell and the company that will promote the products or services for sale. It is important to Cclearly define the scope of work and agreements to protect confidentiality.
39. Intellectual Property Assignment Agreement
An intellectual property assignment agreement transfers to the employer the rights and ownership of trade secrets, patents, trademarks, and other intellectual property created by personnel staff during their employment to their employers. It is essential that the agreement includes a confidentiality agreement.
40. Settlement Agreement
A settlement agreement is a legally binding contract between parties that outlines the resolution of a dispute. It sets the terms of the compromise between the parties. Typically, one party gives up the right to pursue a lawsuit and other legal claims in exchange for compensation or other value.
41. Sponsorship Agreement
A sponsorship agreement defines a relationship between parties where one party provides money or similar rewards to another party for promoting the party's goods and services. Key terms to look for in a sponsorship agreement include, timelines, renewal options, exclusivity, requirements for demeanor when promoting the product, and termination terms.
42. Research and Development Agreement
A research and development agreement is a contract between parties to research and develop a product. The agreement should include a detailed description of describe the project, each party's roles and responsibilities, a timeline for the project, the budget, and intellectual property rights.
What 5 types of contracts must be written?
Some types of business contracts must be in writing to be legally enforceable. The types of business contracts which must be in writing include:
Real estate sales contracts
A business contract that extends beyond one year
Sale of goods and services for more than $500
Agreements to assume another person or company's debt
Contacts for a personal representative to pay estate debts from their personal funds
There may be other contacts that must be in writing to be enforceable under state law. The best way to ensure your business contracts meet the requirements to be enforceable is to work with a Maryland business contract attorney.
How standardized and personalized contracts compare
A standard contract is a template. The language is the same except for specific terms. Benefits of using standardized contracts include saving time and money when drafting contracts. Most standard contracts contain essential clauses such as confidentiality, jurisdiction, termination, dispute resolution, and liability clauses.
A personalized contract has many of the same clauses as a standardized contract. However, the contract is customized to ensure the terms and conditions accurately reflect the specific preferences and needs of the parties.
How to Review a Contract - Tips for the Business Owner
Business owners musthave to sign so many agreements and business contracts it’s can be tempting to merely skim over the document and click the box or sign on the line. You might assume that most contracts have standard language, but you might be surprised at the terms people try to sneak into seemingly innocent sections of business contracts.
When your assets or rights, like intellectual property rights, are at stake, you should talk with a Maryland business contracts attorney before signing an agreement. Your lawyer can provide additional guidance, review, and negotiation for your Maryland business, but here are a few tips on how to review a contract:
Many contracts contain negotiable terms. You might not have to accept the document as written when the other side sends it to you. They hope you will merely sign the paper, but people usually allow themselves some “wiggle room” on the initial draft of a contract.
Make sure there are no surprises about the parties to the contract. If you do not recognize an individual or organization listed as a party, you can ask for clarification. You do not want to discover later that the entity you dealt with was a shell corporation.
All the terms of the agreement must be in the contract. If the document is missing any essential term, like the price, quantity, or time for performance, do not sign it. Also, any promises the other side made to you do not exist in the eyes of the law unless you memorialize them in writing in the contract. If the other side refuses to put their promises in the contract, they probably do not intend to keep their word.
All the rights and responsibilities of all the parties should be clear and unambiguous. You cannot enforce a duty or benefit if the contract does not mention it or could get interpreted in multiple ways.
The contract should state what will happen if things go wrong. The agreement should say who will bear the risk and loss in which situations, and details about any required insurance or bonds. The contract should also specify the remedies available to each party, like daily liquidated damages at a specified rate per day for completion delays. The remedies section should state whether the parties will try to resolve their differences through arbitration or can go straight to court.
Do not sign a contract that contains blanks. Doing so is like signing a blank check.
Initial changes. If you make any changes to a form contract, write your initials and the date next to each edit.
Understand how to terminate the contract. Sometimes you need to get out of a contract. The document should include information on how to terminate the agreement, the allowable grounds for termination, and the consequences if a party ends the contract.
Ensure confidentiality. When the work involves the other party getting access to your files or other information, include a confidentiality requirement in the agreement.
Do not sign a contract that incorporates the terms of another document you do not have. You will want to get a copy of the incorporated document and read it with the same level of scrutiny as the main agreement.
These are but a few examples of things you should consider when you evaluate a contract. A Maryland business contracts attorney can review your contracts, negotiate on your behalf, and draft changes to proposed agreements. Contact Steve today to learn more.
