In the business world, it is said that opportunities do not just happen — you create them. This is especially true when it comes to contracts. Contracts are a way of crafting an opportunity for your business in the most specific terms possible. Of all the advantages of a contract, it provides you a legal framework and protection you need to run your business smoothly, without worrying about being taken advantage of by partners, employees, or customers. They also offer peace of mind in knowing that you've got all your bases covered.
So, you may be asking yourself, "What are contracts and why do I need them?" There are many reasons for a contract.
The reason for using a contract depends on the situation. You might be asking, "What are contracts and why are they needed?" A contract has many purposes and most of them will be discussed in this blogpost..
Who is responsible and accountable for what? Contracts use language to spell out each party's responsibilities in a transaction. In most cases, one party does provide a product or a service in return for a consideration. There may also be clauses and sections defining when and how parties may terminate the association or change it in unique situations, such as restructuring payment schedules and so on.
Provisions of the contract also specify what parties are not liable for. For example, a marketing consultant may include an indemnity clause in the contract stating that they are not liable for any false statements made by the company and thus cannot be held liable in any legal action is taken by a third parties against the contracting party.
Contracts obligate parties to carry out their stated responsibilities. If one party fails to honour a portion of their agreement, they are in breach of the contract, that can lead to civil liability. Contracts also typically include provisions stating that if one part of the contract is violated or invalidated, all other parts of the agreement will remain in effect (unless an express provision is provided otherwise).
Timelines and deadlines for completing specific projects are critical components of a contract. As a result, contracts can include a payment schedule that specifies when payment for completion is due and the exact requirements for what represents a completed project. These two components ensure that all work is paid for on time and that it meets the quality standards.
Parties add another layer of assurance to hold each other accountable by providing detailed timeline terms. Parties may charge late fees and request additional amounts if the client later on changes their mind about the scope or specific requirements of the product and service to be provided.
The most important reason for a contract for many parties is that it is an agreement outlines the payments that will be made for a product or service covered under the agreement. A fee-for-service structure, in which a product or service is traded for a fixed amount, can be used to determine payment. Monthly rates or salaries can be used to establish an ongoing fee structure in which a party is paid at specific milestones such as weekly, monthly, or upon execution of projects.
Bonus payments and commissions can be discussed as an incentive for doing extra work or work that produces particularly positive results. A penalty is paid for the termination of contract of a service that is either a percentage of total cost of the service or a fixed amount. When an artist, writer, inventor, or other creator deals in work comprising of intellectual property for additional payment, licencing fees may be involved. A contract can include any or all of these fees or fee structures.
Lastly, a contract serves as an insurance policy which protects both the parties and their interests. If any part of a contract is violated, whether knowingly or unknowingly, one or both the parties can take steps to resolve the issue and find a solution. In certain cases, this may entail that one party files a complaint against another in order to resolve the dispute. Often these contracts include a subheading on governing law that states that the contract is subject to the law of the country in which it was settled and signed, recognising that the law has the ultimate authority on the contract's validity.