Commercial Contracts | What Business Owners Should Know

When business owners wish to conduct a transaction with another business, they often rely on commercial contracts. Just like any other contract, a commercial contract is an agreement between your business and one or more other businesses, which is legally binding. Any business that’s intent on transacting with another should consider using a commercial contract to protect their interests. 

There are several different types of commercial contracts that people generally use. 

• Intellectual property and licensing contracts.
  • These agreements pertain to trademark, copyright, patents, trade secrets. 
• Non-Disclosure and confidentiality agreements.
  • An agreement that addresses protection, which forbids partners, vendors, employees, etc from disclosing any proprietary information. 
• Vendor and customer agreements.
  • These contracts describe the responsibilities and rights of buyers and sellers of goods or services. 
• Partnership and shareholder agreements.
  • Businesses use these contracts to determine specific ownership interests, as well as rights and responsibilities of owners. 
• Real estate agreements.
  • If you are selling or leasing commercial real estate, you will use this type of contract. 

Whatever the type of contract you are using for your business transaction, they serve the purpose of governing the relationship and making sure all those involved stick to what is promised. 

Expansion, Success, and Growth – How Contracts Can Help

When businesses are in the expansion stage, commercial contracts play a large part in their success and growth. Usually, the more commercial contracts you’ve signed, the more rapidly you are scaling or expanding. They are such a major player in growth because of the increased risk that accompanies transactions of a higher value. As you may know, businesses should always be on the lookout to reduce risk. Not only do these contracts help with risk reduction, they also serve the purpose of laying out expectations for the parties involved. People need to know what they are supposed to do in order to do it – accountability is key. Along the same lines, commercial contracts are a great way to manage your business transactions and relationships.

Your professional profile as a business, as well, can be heavily influenced by your commercial contracts. When you are negotiating and closing a deal, a solidly drafted contract can show the other party or parties that you are serious and ready to be held accountable. 

Many business owners wonder what are the types of clauses that should be included in their commercial contracts. Most often, these clauses are confidentiality and non-compete clauses, what will terminate the contract, an identification of the rights of the parties (force majeure), dispute resolution, jurisdiction, and liquidated damages. 

Of course, one subject that always comes up in a discussion of contracts is breaching. What do you do when someone doesn’t do what they stated they would, as written in the contract? Any party who fails to meet the obligations of a commercial contract has breached that contract. Typically, the way to address a contract breach is by seeking monetary damages. These are also called compensatory damages. 

What to Do When a Contract is Breached

The following remedies are used when contracts are breached: 

• Injunctive relief.
  • This prevents another party from engaging in a certain behavior. 
• Liquidated damages.
  • This refers to the monetary amount, specified in the contract, that one must pay if they breach the contract. 
• Rescission.
  • This means that the contract is undone, so the party who did not breach the contract can decide not to adhere to the stated obligations. 
• Nominal damages.
  • When the court finds a breach, but the damages are insignificant or result in no loss. 

Plan How to Manage You Commercial Contracts

Regardless of what kind of contract you are seeking for commercial purposes, each party has to enter into it willingly. If anyone signs a contract against their will, or if they were misled in any way, that can render the contract invalid. You may also want to consider that if there’s any mistakes or errors concerning whatever is purchased, offered, or sold – that can permit a party to cancel the contract. 

Business owners should also factor in how they plan to manage their commercial contracts. You don’t want to have things spiral out of control! When it comes to contract lifecycle management, you’ll need to address the process from beginning to end. That means, the creation of templates, negotiating and drafting agreements, conducting reviews of obligations in the contracts, tracking the performance of your business partners in relation to promises made, and renewal or termination of executed contracts. 

Are you in need of a particular commercial contract? Do you want to learn more about what contract makes sense for your specific business needs? The team at Stockman & Poropat, PLLC can offer you the legal guidance you’re seeking when it comes to business transactions and relationships. From drafting, negotiation, tracking, and/or renewal – we can handle it all for you! Contact us today for a free consultation. 

Up next we will be discussing Severability Clauses.