Different Types of Business Contracts

If you're a business owner or looking at starting a new business, you'll need to know the different types of business contracts required by law.

Different Types of Business Contracts

David Goldberg

May 27, 2022 08:00 AM

These documents serve as legal agreements between two or more parties and can help protect your interests in various ways.

In addition, being in the know on this aspect of a business will help you make informed decisions. You'll also be made aware of any potential liabilities that could come with using certain types of contracts.

As with anything related to legal matters, it's always best to consult with an attorney to ensure you're fully protected.

Business contracts can be divided into three categories:

  • Employment contracts
  • Sales-related contracts
  • General business contracts

Employment Contracts

When you hire people to provide services to your business, you'll need to put employment contracts in place. These documents detail the terms which both parties are bound to fulfill. After all, this type of relationship is not as simple as “they work, you pay.”

It's important to have hiring agreements in writing to avoid confusion regarding expectations from each employee. A written contract can also help prevent potential legal problems down the road.

Below are some of the most common types of employment contracts:

General Employment Contract

This is the most basic type of employment contract. It will outline the duties and responsibilities of the employee, and their compensation. It may also include other details such as the duration of the contract, employee benefits, and grounds for termination.

Freelance Contract Agreement

Also known as an independent contractor agreement, this type of contract is used when hiring someone to provide services on a non-permanent, part-time basis. It outlines the freelancer’s scope of work and the corresponding compensation.

Since independent contractors are not considered employees, they are not entitled to the same protections and benefits enjoyed by full-time and part-time employees.

Non-Compete Agreement

A non-compete agreement is used to prevent employees from going to work for your competitor when they leave your company. Basically, it informs employees about actions they cannot carry out after their employment has ended.

Non-compete agreements can be difficult to enforce, so it's advisable to draft a detailed contract that includes the following:

  • Period covered (maximum of one year as the law provides)
  • Geographical region (never beyond its borders)
  • A short list of competitors the employee cannot work for

Sales Contracts

If you're in the business of selling goods or services, sales contracts are crucial. These agreements fully encompass the terms of each sale, including prices, duties, and modes of transfer.

Below are some of the most common types of sales contracts:

Sales Agreement

A sales agreement is used to document the details of a sale. It includes the description of the goods or services, the date of delivery, and payment terms. Other information specific to your industry, such as spoilage and expiration, may also be added.

Purchase Order

When you deal with suppliers, they would most likely require a purchase order from you to make the transaction official. This document protects both you and your supplier. It guarantees on-time delivery and payment.

Bill of Sale

A bill of sale is used to document the sale of goods. It will include details such as the description of the goods, the price paid, and the date of sale. It also includes the terms of sale of a property or service.

Bill of Lading

This type of contract is used to document the transportation of goods. It will include details such as the description of the goods, the destination of the shipment, and the date of delivery.

Statement of Work

A statement of work is used to document the scope of work to be performed by a third-party contractor. It should include the job description and scope, the dates of performance, and the compensation agreed on.


A warranty assures your customers of a high-quality product and safeguards them from any danger due to its use. It specifies the period and parts covered as well as the terms of repairs and replacement.

General Business Contracts

In addition to the ones listed above, there are several other contracts commonly used in business. Here are a few examples:

Nondisclosure Agreement (NDA)

An NDA is essential in protecting a company’s confidential information, such as research data, recipes, finances, and marketing strategies. It outlines the aspects that can and cannot be shared, and the consequences of breaching the agreement.

Indemnity Agreement

An indemnity agreement is used to protect one party from liability. It enumerates the limitations of the said party’s responsibilities in any untoward incident.

Also called liability waivers, these bonds are often employed in high-risk activities like skydiving, rock climbing, and bungee jumping. In essence, the indemnity agreement states that you accept the dangers of the activity and agree not to sue the company if you're hurt while doing it.

Partnership Agreement

A partnership agreement documents the terms of owning and operating a business by two parties. It includes the roles and responsibilities of each partner, the percentage of ownership, and how profits will be divided.

Franchise Agreement

This contract is between a franchisor and a franchisee. The document states the territorial radius limit of the franchisee’s operations, the exclusivity of the franchise, and the period covered by the agreement.

Settlement Agreement

A settlement agreement is used by people and entities involved in a legal dispute to avoid drawn-out court cases and mutually benefit from the time and money saved. Your attorney will ensure that the settlement amount, date of payment, and all other conditions are met.

Assignment of Contract

An unavoidable circumstance while running a business is the inability of a supplier or service provider to continue the work they committed to doing for you. An assignment of contract can save the day by allowing them to transfer your agreement to another party and ensure continuity in operations.

Protecting Your Business With Contracts

Various contracts are utilized in a business setting. While some are more common than others, understanding the purpose of each can benefit your business.

If you're not sure which type of contract is right for your enterprise, or if you need help drafting one, you should contact a lawyer specializing in business law. The lawyers at GLG LLP can help you navigate the world of business contracts and protect your interests.

For more information please visit GLG LLP Business Lawyers website at

This blog was published with the help of dNovo Group, a digital marketing agency for lawyers (

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