On behalf of Chandler and Brown, Ltd. posted in business planning on Thursday, January 31, 2019.
Contracts form the backbone of many operations of a small business. Those engaged in business planning will generally enter into many contracts. Therefore, it is important that small business owners in Minnesota have a basic understanding of the elements that make up a legally valid contract. Keep in mind that this post is only a general overview of contract formation, and that readers who have specific questions regarding contract formation should consult with their attorneys.
First, contracts are formed between parties. These can be individuals or companies. For example, a project owner might form a contract with a contractor or an independent contractor might form a contract with a company. The two parties to the contract must be competent.
Second, contracts must involve the exchange of consideration. Consideration is the benefit each party will gain from forming the contract. For example, a manufacturer might exchange money for something made by a supplier. The manufacturer gains a benefit from obtaining the product they want, and the supplier gains a benefit from being paid for selling the product. Or, the independent contractor may agree to provide a service in exchange for payment from the company. The independent contractor gains a benefit by being paid for performing a service and the company gains from having the desired service performed.
Third, contracts will contain terms and conditions. These are simply the right and obligations the parties to the contract agree to. For example, the amount of money to be paid for a service and when that payment will be made are terms and conditions to a contract. Remedies in the event of a breach can also be included as terms in a contract. It is important to note that contracts cannot have an illegal purpose.
In the end, some contracts are relatively simple, while others are very complex. However, before entering into any contract, it is essential that each side understands the terms of the contract and what they are agreeing to do. Because contracts are legally binding, those with questions about a contract will want to seek the professional guidance they need to ensure the contract they are entering achieves the goal they desire.