What is a Contract ? Explained
What is a contract from a business perspective? To define a contract it is vital to understand that a contract is fundamental to making any agreement legally valid. The prominence of a contract makes it an essential requirement for transactions across business teams. A contract legally enforces an agreement’s terms, paving the way for smooth, hassle-free business flow.
To define ‘contract’, it is a formal agreement between two or more parties that binds them legally. The ‘contract’ meaning also holds when parties create an agreement verbally.
Contracts enable numerous people or parties to collaborate seamlessly & work together towards achieving a business plan. A contract enables businesses to establish & supervise professional alliances by clearly defining each party’s roles & responsibilities.
Having an official contract in place helps businesses to contribute to the terms they have agreed upon by performing duties they are legally bound to. If any of the parties involved violates a contract’s term, the law remedies the affected party/parties. The remedy may either be in the form of monetary damages or a specific performance of the contract’s undertaking.
Contract Basics: Elements of a Contract
Every contract has a basic set of elements that define the objectives, duties, terms, & legality of a business relationship. To learn what elements are essential to a contract, it is important to know what is ‘contract’ in business law.
According to the Cornell Law School, a contract is an agreement between multiple parties & enforcing it creates common obligations to all the included parties. The mutual commitments are enforced by the law & if any of the involved parties breach the contract, the law provides rectification to the affected parties.
The primary elements of any business contract include a mutual acceptance by all parties, which is demonstrated by a workable offer & acceptance, subject to a specified consideration, legal capacity, & legitimacy.
A contract needs to have six elements in order to make it enforceable:
- Offer: An offer in a contract is an assurance one party provides to another, demonstrating the capability to perform or not perform a specific action in the upcoming future.
- Acceptance: This component reflects the terms of the offer made on the contract & ensures that all the parties acknowledge the terms present in the contract. Acceptance is expressed through words or deeds.
- Awareness: Awareness of the contract is proof that the parties understand the basic matter of the contract & consent to it.
- Consideration: The consideration element involves a promise of something valuable in return for the actions or non-actions outlined in the offer. In most cases, it is the payment for the goods or services delivered.
- Capacity: Every person/party that signs the contract demonstrates the legal capacity to acknowledge what he/she is consenting to.
- Legality: The contract is conditional to the laws of the jurisdiction under which it is created & operates.
Types of Contracts Commonly Used in Business
There are two primary contract types that are commonplace in most businesses. They include:
- Bilateral Contracts: These types of contracts are agreements in which both parties exchange promises, i.e., a promise is exchanged for a promise.
- Unilateral Contracts: These contracts are agreements on which a promise is made in exchange for a particular operation or performance.
Contracts are further divided into various types based on their nature. It includes agreements created based on the task’s formation, execution, consideration, & validity.
Businesses enter into an agreement on a day-to-day basis for various functions, some of which include non-disclosure agreements or NDAs for organizational data security, sales contracts that facilitate business sales transactions, employment contracts, property rent/lease agreements, vendor & service contract agreements, and much more.
The Purpose of Contracts in Business
Contracts serve a variety of functions in managing a particular business plan. A contract enables businesses to streamline various task & workflows, such as
- Maintain official records of a project throughout its lifecycle
- Establish timelines for implementing each step of the contract
- Outline the terms & conditions pertaining to the project
- Describe the range of duties & responsibilities that the involved parties need to perform
- Ensuring the parties are protected in case of agreement unfulfillment or breach of contract
- Define the clauses relating to breached obligations and the conditions that cause a transaction to end.
- Sanction funds on time to implement a phase of a project as planned
- Simplify multi-person and multi-party communication
With a slew of benefits it brings to the table, a contract is vital to regulate every undertaking of the business effectively.
Why Do Businesses Need Contract Lifecycle Management Systems?
Contracts are a key requirement for any business venture to take place in a structured manner. In addition, the volume of contracts created & executed by businesses makes it vital for them to set up an efficient contract management system. Having a systemized approach to regulating the different organizational contract agreements makes it effortless for firms to manage all aspects of their contracts.
In addition to managing the agreement document creation process, firms need to adopt an effective system that manages a contract across all its stages. Right from the initial draft up to renewals & terminations, a structured contract management system ensures that the contract flows smoothly across its multiple stages.
Are Digital Documents the Answer to Streamlined Contract Management?
Having consolidated, accurate, & accessible information is pivotal for smooth business flow & smart CLM or contract lifecycle management tools are designed to serve the same purpose. They offer an end-to-end contract management solution that businesses can utilize to add efficiency across their documentation process flow.
Digital contracts ease various facets of business, including effortless collaboration, operational transparency, timeline adherence, regulatory compliance, and expedited task executions.
CLM software paves the way for improved business processes by enabling parties to communicate with ease & collaborate seamlessly. Integrated smart features like clause suggestion, electronic sign support, automated alerts, etc., enable firms to manage every stage of their contracts with ease & efficiency.
What is a Contract Management Platform & How Does It Help Businesses?
CLM or Contract Lifecycle Management is the process of managing contracts in an orderly fashion from their initial draft stage through compliance, approval, execution, & renewal. There are smart contract management software platforms that companies can make use of to manage their contracts with added convenience.
Platforms such as CONTR.ACT by SignDesk offer an array of features & services that help businesses streamline & automate their contract management processes. Some of the impressive features that contr.act offers for business document management are:
- Contract Repository:- Centralized contract repository for all the contracts of the firm
- Clause Suggestion:- Smart clause suggestion to facilitate fast contract agreement creation
- Clause Locking:- Clause locking facility to prevent non-compliance
- eStamp & eSign:- eStamp & eSignature integration for quick contract approval
- Timely Alerts:- Automated notifications for timely contract updates & renewals
- Performance Tracking:- Contract functioning is tracked to deliver analytical data & project performance insights
- Total Transparency:- Document transparency across all stakeholders involved in the project for seamless collaboration
Implementing intelligent contract management software into their documentation workflows enables organizations to simplify collaboration, ease accessibility, & process operations at an accelerated pace.
Contract: A Must-Have For Businesses of All Shapes & Sizes
Contracts are the most pivotal tools in businesses as they are capable of streamlining operations & ensuring tasks are completed on time. Organizations can observe that they can have better business relationships & expand their scope of revenue by executing contracts in a smart way.
Contract lifecycle management tools are curated to offer businesses a better way to manage all their contracts on a single platform. Introducing CLM into their workflows helps organizations to automate their contract agreements throughout their life cycles. They can extract key insights regarding the project in order to make critical business decisions using efficient contract management software such as CONTR.ACT.
Businesses can transform how they manage their contracts by introducing smart contract lifecycle management into their documentation workflows. Companies can schedule a free demo to learn what is a contract & how they can bring in digitized documentation & introduce simplicity into their contract workflows with SignDesk.
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