A business agreement is any statement or contract that is formed between two or more business organizations. This agreement can be either oral or written and is an exchange of promises between the businesses involved. Technically, most agreements formed between any businesses could be considered business agreements.
The purpose of such agreements is to determine and dictate the way the business is run, as well as detail the relationship between each partner. Business agreements can cover nearly every aspect of the business practice, including trade, employment, hiring, partnership, confidentiality, and acquisition. The term “business agreement” can sometimes refer to agreements made within one company, such as an operating agreement that is used to regulate the organization’s internal affairs.
Because business agreements are contracts, they must fulfill all of the legal requirements for a valid contract. This includes mutual assent, offer and acceptance, consideration, capacity, and legal purpose. While the subject matter of business agreements vary due to the nature of the contract, a well-written business agreement will generally contain the following:
- Terms of offer and acceptance of the business agreement;
- The names and roles of those party to the business agreement;
- The subject matter of the business agreement, such as sales, employment, acquisitions, etc.;
- Specific times, dates, and places for performance of contract duties;
- Any other important and related matters, such as stock options and ownership rights; and
- Specific legal consequences should either party breach the agreement, such as an agreement not to sue without first seeking mediation proceedings.
Some oral business agreements are legally enforceable. An example of this would be a business agreeing to purchase a small piece of inventory, such as a printer from a third party. Most oral business agreements are normally followed by the businesses writing down the terms of the contract, acting on the contract, or with witnesses present during the oral agreement. However, not all oral contracts are enforceable, binding, or meet the Statute of Frauds. The Statute of Frauds is essentially a body of rules that dictate which types of contracts must be formed in writing, or else they will not be valid and legally enforceable.
There are several types of contracts that must be in writing in order to be legally enforceable. In business agreement terms, these include:
- Any contract that involves the sale or transfer of land;
- Any contract involving the sale of goods that exceeds $500;
- Any contract in which one party promises to pay the debt obligations of the other party; or
- Any contract in which performance cannot be completed within one year of contract formation.
Although some oral agreements are legally enforceable, it is best to get all agreements in writing, even if the law does not require it. Additionally, the business agreement should be signed by all parties involved. Doing so ensures that all parties have a legally enforceable record of the terms of the business agreement, which will limit any potential for disputes.
There are several different types of business agreements. The most common examples include:
- Acquisition Agreements: A business acquisition agreement details the terms of one business purchasing or merging with another. The seller in this specific situation is responsible for providing much more information and assurance than the buyer;
- Partnership Agreements: This is a written agreement between partners who are running a for profit business, and the agreement will explain the relationship each partner has with the partnership business. Two or more businesses may enter into a partnership in order to achieve a specific business goal. This type of arrangement can be either permanent or temporary;
- Buy-Sell Agreements: A buy-sell agreement is between the owners and the company, and sets certain guidelines for the future of the company if one or more of the owners no longer wish to take part in the company;
- Business Confidentiality Agreements: For business purposes, a confidentiality agreement is made between an employee and the employer and states that specific types of information will not be revealed to any other party; or
- Non-Compete Agreements: These agreements are meant to prevent former employees from working for a competitor, or open a competing business. This is only for a period of time and is specified in the agreement.
Typically, businesses will include their business agreements in a broader and more general business contract. Additionally, some contracts may contain several different agreements in several different clauses. Using a partnership agreement as an example, a confidentiality clause might be included that requires the partners to keep the shared information private.
No matter the type of business agreement, it should be kept simple in order for all parties to clearly understand the terms of the agreement. All details and payment obligations should be specified, and there should be an agreement on circumstances that would terminate the contract as well as a way to resolve disputes.
Different jurisdictions have different criteria for what makes a business agreement legally enforceable. Further, there can be costly consequences for not upholding your end of an agreement.
A knowledgeable and qualified business attorney can help you draft and revise business agreements so they meet your local laws. Additionally, should a dispute arise, the attorney will defend your interests in court, if needed.