The purpose of a contract
The
purpose of a contract
is to establish and formalize a
relationship by clearly defining the
terms and obligations
.
It ensures all parties understand what they're agreeing to and that
there's no room for misinterpretation.
Signing a contract demonstrates your commitment to the
agreement and shows you are trustworthy, which helps in building
strong relationships.
After all, as set out by the
Harvard Business Review
, trust is the
basis for almost everything we do.
The document can also be used as a reference if either party wants
to check the terms at any point.
Contracts offer legal protection in the event of a dispute and can be
used in a court of law if necessary.
However, a clearly-written agreement can actually help you avoid
drawn-out arbitration or even going to court at all, saving your
business time and money.
To be enforceable, contracts must contain these seven elements:
Identification.
The definition of all the parties to which the
contract applies.
Offer.
The promise that one or both parties will (or will not,
in the case of non-disclosure agreements
) perform a specific
action.
Consideration.
Where something of value is promised in
exchange for the actions.
Acceptance.
An expression that both parties have agreed to
the terms.
