People start or purchase businesses as a way to generate revenue. Profitable companies can have value on their own in addition to providing income for those who own or operate a business. Unfortunately, running a business comes with a significant amount of liability and risk. Business operations can be very unpredictable, and the wrong business relationships could cost an entrepreneur or business owner a staggering amount of money if something goes wrong.
Written contracts between companies and their key employees, suppliers, service providers or investors can help protect a business and those running an organization. These are some of the ways that written contracts can help to protect a company and its executives or owners.
By creating clear expectations
Miscommunication is one of the top causes of business disputes related to contracts. Employees might think they deserve a bonus when the company has made no promises about such extra compensation. Vendors may believe that they can change prices at any time without advance warning, leaving a business with a sudden and drastic increase in its operating expenses. Contracts make it clear exactly what each party will do for the other and when. The more thorough a business is contracts are, the less likely there are to be conflicts related to confusion and miscommunication. However, there are times when a contract can be too specific and cause issues as well.
By establishing specific penalties
Contractss do much more than set out the basic terms of the contract.. They can also clarify what will happen in a case of non-performance, substandard performance or if there are substantial delays in fulfilling one’s obligations. From late payment penalties to liquidated damages for unfulfilled contracts, there are many different consequences people can integrate into their written agreements with another party. Having such terms in a contract can both deter violations of the agreement and make it easier to hold another party accountable for a breach of contract later.
By providing a form of evidence
Without a written contract, a business dispute about undelivered goods or an employee sharing trade secrets online might be very hard to resolve in the civil courts. A written contract serves as a crucial record of the agreement between the parties and can be an important starting point for enforcement efforts after a contract breach. Judges hearing contract cases usually start by scrutinizing the document itself and any records of how one party or the other may have violated that agreement.
Contracts are an invaluable tool that can protect businesses from the failures and misconduct of others when carefully crafted and properly enforced. Drafting custom documents and taking action after a breach of a contract are both ways to protect an organization from a risk of financial losses and a variety of unique operational challenges.