Entrepreneurs have a lot on their plate, and the one thing that can really get them in trouble is the legal aspects of business. When first starting a business, there’s a lot of hustle involved, which leads to the small business owner taking major risks.
Some of the most worrisome risks of all are contract-related.
You might agree to something orally, and if you don’t meet your end of the agreement, you might be in trouble as a result.
Let’s talk about some of the contract law basics every entrepreneur should know and understand.
What Constitutes a Contact?
There are written and oral contracts. Written contracts have stipulations that are clearly defined, whereas oral contracts are not as neatly formed. A contract in its most basic form is an obligation between two or more parties.
If you want a contract to be valid, it must meet the following criteria:
- An offer must be made
- Acceptance of the offer must be made
- Consideration of the offer has to be provided
Consideration is an exchange, whether it be money or not, that is tied to the contract. You may agree to pay for a product if it’s delivered within the terms of the contract, or upon receiving the product, you may render a service.
Some form of consideration must occur.
If your contract meets these three points, then you have a valid contract in place – for the most part.
Oral Contracts are Valid
As a business owner, it’s all too easy to make some form of a promise that you never meet. Oral contracts are enforceable and valid, but there are exceptions to the types of oral contracts that can be made.
It’s always best to have a contract down on paper so that all terms of the agreement are presented and met appropriately.
“Many business owners do not know that contracts do not have to be in writing to be valid,” states Phillips & Mille.
Contracts that are not enforceable when made orally include:
- Land transfer or sale
- Contracts subject to the Uniform Commercial Code
- Contracts that meet the debt or duty of another party
- Consideration of marriage
- Contracts by which the terms cannot be met within a year
But it’s very difficult to prove that an oral contract exists. You will have a hard time trying to prove the existence of such a contract, so it’s always best to have the contract in written form.
Written Contracts and the 3 Requirements
If you want to make sure that the terms of a contract are met and enforceable, you’ll need to have everything gin writing. It’s best to have a lawyer create the contract for you. But in the event that you don’t hire a lawyer, you’ll need to better understand the following:
- Offer is an agreement on doing something if the opposing party accepts. Your terms must be agreed upon, and if the terms aren’t agreed upon, then a counter-offer may be made. These offers result in negotiations, wherein all parties will agree on the specifics of the contract.
- Acceptance is the agreement to the offer. This can be anything, from a verbal agreement to a written agreement. Written is always better, and digital correspondence can also be seen as acceptance. If a client agrees to the terms and tells you via email, you can use this acceptance as proof of the contract’s acceptance.
- Consideration is something that both parties receive as per the contract. Money is normally the consideration, but this can be products or services in exchange for the terms of the contract being met.
If your contract has all three of the above in place, it’s easier to enforce. But, if you want to make sure a contract is valid, it’s best to have it drawn up by a lawyer.