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  • Ball & Barry Law

The Importance of Contracts in Business Transactions

Contracts are an integral part of all business transactions. They can help protect businesses from future potential legal disputes with various parties and entities. It's essential for all businesses, no matter their scope or size, to have solid, documented contracts detailing their agreement's terms and conditions. They shouldn't rely on verbal or implied agreements.

Business contracts can include the following types of agreements:

  • General business contracts, such as a partnership agreement, indemnity agreement, non-disclosure agreement, or property and equipment lease

  • Bills of Sale

  • Employment agreements

  • Licensing agreements

  • Promissory notes

But what makes these contracts so imperative to business transactions?

A Record of Commitments

First and foremost, a contract is a paper trail that holds each party accountable for the terms they set and agreed to at the outset of the relationship.

Contracts serve as a record of commitments for all parties involved. At their most basic, contracts are about relationships. First, the two parties mutually agree to work together and build a connection. If this relationship is fostered and proves itself beneficial to both sides, it can last years or even decades. A contract is the tangible representation of that relationship and the commitment each parting is making to it.

Contracts hold each party legally accountable to their original agreement. For instance, with a SaaS contract, one party agrees to provide the other with software for a predetermined time. The receiving party agrees to pay the provider for using the software during that time.

All parties to the contract must understand the terms and conditions of the agreement they sign. To make this happen, you may need to explain the contract in plain language or provide a summary of the contract's key provisions. Each party to the contract should also secure legal representation so that they understand the contracts they agree to sign.

Conflict Prevention and Risk Mitigation

Most business contracts go through a negotiation and redlining process, ensuring all parties receive the best deal possible within the agreement. The parties can work out conflicts and disagreements before signing the contract, which also helps in risk mitigation. A fruitful negotiation should lead to a mutually successful and reliable outcome that helps prevent future conflict and lays the foundation for a strong partnership in the future.

To protect all parties, these agreements must have a comprehensive audit trail of every change, comment, and edit made. Emails back and forth between each party are often difficult and time-consuming to track down and compare. However, when you enlist the help of a Denver business attorney, they can assist you with contract management to include a comprehensive audit trail that allows everyone to find out who made what edits and when.

Addressing Disagreements

One of the key benefits of having a binding contract is that it can help prevent misunderstandings and disputes. By clearly defining the terms and conditions of the agreement, both parties can ensure that they are on the same page from the outset. Even still, some disputes and disagreements can arise.

When those happen, the contracts already in place can provide a clear and reliable path forward. By including provisions for dispute resolution, such as mediation or arbitration, parties can avoid costly and time-consuming legal battles. When the next steps for dealing with a dispute are detailed within the contract, the parties are more likely to work out their disagreements and avoid litigation.

A Collaboration and Communication Tool

Contracts are, by nature, relational and collaborative. The parties to the agreement work together to identify their needs, build healthy communication, and open up collaboration. Negotiation can be used to achieve effective collaboration during the contract drafting process. After signing the contract, all parties should feel confident in the final outcome because of reliable communication.

Protection from Liability

Contracts can also help protect businesses from liability. In some contracts, companies can shift the risk of loss to the other party and limit their own exposure by including indemnification clauses and warranties.

Contracts can help guarantee compliance with applicable federal, state, and local laws and regulations. In addition, businesses can circumvent future legal issues by including provisions for compliance with relevant laws, such as anti-discrimination laws or environmental regulations.

Contracts Extend a Company's Brand and Values

Although it's not the first thing that comes to mind when people think about contracts, they are an extension of the company's brand and values. Their brand and values are portrayed in the setup of the agreement and how it is drafted. Even simply sending out a contract is a reliable sign that a business cares about having a detailed record of a relationship they are committing to.

The wording of the contract and the negotiation process gives each party an idea of how the other functions. A reliable company brand shows through careful attention to contract creation and the following interactions.

Hire an Attorney to Help Draft Your Business Agreement Contracts

When drafting a business transaction contract, it's crucial to work with an experienced business lawyer who can ensure that your contract is legally enforceable and provides the protection your business needs. Attorneys can help identify potential risk areas and include additional specific provisions to mitigate that risk.

Furthermore, a Denver business attorney can help you draft a business contract that is clear and unambiguous, ensuring all necessary provisions are included. These steps help prevent misunderstandings and disputes down the road.

Call Ball & Barry Law Today for Help Drafting Your Business Contracts

Every business has and needs contracts — from the first employee hired through every deal signed. How many contracts they have, and their specific terms will vary depending on the type of business and its size. However, the importance of reliable contracts is unwavering.

Working with a knowledgeable attorney to draft an iron-clad contract can provide businesses with the protection they need to ensure the success of their transactions. Call Ball & Barry Law today at (720) 439-2530 or contact us online. We can help you draft reliable business transaction contracts that will benefit your business for years to come.


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