7 of the Most Common Types of Business Contracts
Business contracts can be complex depending on what industry they are created for. There are, however, some common types of contracts that most businesses will come across at least once. Here’s a rundown of what they mean and how best to manage them.
#1 Bill of sale
Easily the most common type of contract, a bill of sale is just that. It transfers ownership of an asset (be that physical or digital) from one entity to another. Bills of sale are quite simple and can also be used as receipts both for refunds and tax purposes. As such, it’s important to file them correctly as you’ll probably need them at the end of the tax year, or if you need to process a return/refund.
Essentially a longer-term rental agreement, leases are almost always related to your business premises. Leases are straightforward but can lapse out of date, or rules can change so that they no longer meet legal requirements. Many businesses use specialized contract lifecycle management software to keep track of their leases and ensure that they’re always up to date. This helps to prevent any legal problems in the future.
Non-disclosure agreements are often in the news related to celebrities and so-called “gagging orders” in the press. In reality, they’re much more straightforward. An NDA is used when a business is handling complex data or information. The contracts simply enforce secrecy, ensuring that no classified details can be leaked.
#4 Partnership agreement
Another extremely common contract, partnership agreements are drawn up when two people are planning to work together. They establish the nature of the business relationship including responsibilities and contributions. If there’s money involved, a partnership agreement will also set those details in stone, leaving no room for ambiguity in the future.
#5 Promissory note
These differ from standard invoices in that they’re legally enforceable bills to pay a certain amount. A standard promissory note will include a breakdown of how much is owed, any interest rate, and the date of expected payment. These notes are most associated with loan companies, but any business can make use of them, and their applicability is wide.
#6 Purchase order
Sometimes abbreviated to PO, a purchase order simply states your intention to purchase goods or services from another company. They include everything from how much you want to purchase, the price and contact details. Purchase orders are useful because they abbreviate a lot of information in one place, making the sales process considerably smoother.