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Helpful Guide:How Business Contract and Agreement are Formed?

Business Contract and Agreement

Business refers to any commercial activity or trade by a person. For starting a business one needs to follow all the legal processes set by the government for small-scale business and large-scale business. To establish a business contract with the partners, exporters, sellers one needs to follow the essentials of a contract. A business contract may comprise between the seller and the buyer, a retailer and wholesaler, partners, and fundraisers. It can be oral, implied, and written. There can be two or more parties in the contract. The contract can be made with anyone, there should be an offer, acceptance, the parties of the contract must be competent to contract, which means they should be above the age of eighteen years(as stated by the law) of sound mind, free consent of the parties and there should be a legal consideration. A business contract is not very different from any other contract and needs to follow the essentials of the contract. An agreement is different from the contract as it creates enforceable obligations.

As mentioned above the contracts can be in any of the three forms and are considered valid. The contracts carrying real estate, property, and other financial agreements are generally in writing. The oral forms of contracts are binding but the burden to prove that contact existed lies on the petitioner, it solely depends on the faith of the parties in this form of contract. Most of the time companies prefer a written contract as it acts as proof of the deal during any future legal proceedings.

The contract should not be illegal or void in the eyes of the law. If the contract is based on illegal work then, if any party breaches the terms in the contract will not be entertained by the court, it will be punishable. The parties must be of sound mind and there should be no undue influence during signing the contract with free consent. According to Section 14 of the Indian Contract Act 1872, consent is said to be free when it is not caused by coercion or undue influence, fraud, misrepresentation, or mistake. The contract with a minor is void from the beginning.

Employment contracts, insurance agreements, financial agreements are the most common contracts which benefit the offeree. One can counter the terms before deciding the contract, to make both the parties have similar interests. When the contract is made and one party is unable to fulfill the terms of the contract then the other party can file a case for breach of the terms of the contract. The following are the most common business agreements-

  • Partnership Agreement: These are the most common agreements in a business or firm. Here the two or more partners agree upon ways in which the business is run and give relationship details about all the partners. They share the profits of the business. There can be active and silent partners too.
  • Non-disclosure Agreement: Every business is unique with several plans and ideas. It is the first and the foremost thing that companies especially in creative businesses look upon, to not disclose any kind of confidential trade, proprietary, potential investors, vendors, suppliers, buyers, and business model. A non-disclosure agreement is a legal document that restricts the sharing of information outside the company/association.
  • Indemnity Agreement: It means to “hold harm clause” which covers all the damages of one party which suffers due to the agreement. Businesses that include high-risk sign this agreement.
  • General employment contract: This agreement takes place between the employer and the employee stating, salary, benefits, terms and conditions, company benefits, and organization rules. All the companies and businesses have a general employment agreement.
  • Property or equipment lease: During a lease, a monthly payment, maintenance charges, and other terms and conditions are mentioned in this.
  • Joint Venture agreement: when two or more companies come together to share their resources, benefit and reduce risk in the market.
  • Security agreement: This is a pledge, where one person pledges to take the goods of another person as collateral for the contract. It is more like a loan and repayment, example- banks keep the papers of the house if someone has taken a home loan.

Before signing a business contract, a person must thoroughly check the contract and its limitations (if any). A contract might include the duration/ period of the contract, damages, penalty, complaints, dispute resolution methods, special conditions, interest on late payments, and renewal or termination of the contract. There can be various other reasons for ending a contract. Some contracts include payment after the breach, this is known as liquidated damages.  The contracts that include unfair terms or favouring terms for only one party must be reconsidered and review the contract. There are several laws to protect the rights of the signing parties.


Written by Janhvi Joshi

Janhvi Joshi is a Law student pursuing a 5-year BA LLB from Jamia Hamdard University, New Delhi. As a law student incorporated to persuade through communication, be a patient listener, and think rationally. She has a natural skill of speaking in public, giving opinions on the scenarios, and still exploring the various fields of law.

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