Every business has contracts with those they have business relationships and it is likely that they have many contracts. Contracts are a daily part of doing business which is why business owners should understand what should be included in a business contract and what the elements of a business contract are.
Elements of a business contract
There are several different important elements of a business contract including:
- Offer – the first element of a contract begins the contract relationship. An offer for goods or services is made to start a contractual relationship.
- Acceptance – the second element of a business contract is acceptance of the offer. The acceptance of the offer must be made exactly.
- Consideration – consideration is another required element of a business contract. Consideration requires that the parties to the contract exchange something of value. It can be the exchange of money but can also be a promise to take a certain action or a commitment to some inaction.
- Mutuality – mutuality is required so that both parties are bound to the contract which requires that they both assent to the contract and the business contract terms.
- Legality – for business contract to be valid, the subject matter of the contract must be legal otherwise it may be considered voidable.
- Capacity – capacity to enter a business contract requires that the contracting parties enter into the contract freely and voluntarily. If there is duress, undue influence or coercion, the contract may not be considered valid. Additionally, the parties are usually required to be over the age of 18 to enter into a valid contract.
Business contracts memorialize the terms of a business relationship that can include relationships with suppliers, buyers, clients and others. For that reason, business owners need to know how to protect themselves with a strong business contract.