A government agency known as the “Small Business Administration (“SBA”)” is responsible for setting the standard size and revenues included in the definition of a small business. These numerical definitions that the SBA provides can change depending on the type of industry that a business operates in and sometimes even on its sub-industry. Thus, there is more than one way to define a small business.
In general, a small business is typically described as one that has less than 500 employees and takes in revenues of up to $7 million, but there are many exceptions to this rule.
For example, the definition of a small business changes when applied to the finance and insurance industries. In those fields, a small business may mean a maximum of 1,500 employees and having an average revenue of $35 million a year. On the other hand, a small business in the utilities sector (e.g., electric or gas providers) may have anywhere from 250 to 1,000 employees, with revenues of up to $27.5 million.
The SBA’s definition for your business is important because it helps the government to determine how much support you can receive in the event that you need a loan or whether you qualify for certain tax breaks. It also may decide whether you have to abide by certain federal laws, such as the Family and Medical Leave Act (“FMLA”).
Other characteristics of a small business may include sole ownership set-ups, if it covers smaller market areas, has fewer locations, employs less full-time workers, and is less profitable (as compared to a medium-sized company or large corporation).
What is a Business Contract?
A business contract is a contract that is created between either two business entities, merchants, or individuals who have knowledge in the dealing of certain goods. They can be used to cover a wide range of business operations and are enforceable so long as they contain all the elements of a valid contract.
Some examples of business matters that are frequently used as the subject of business contracts include:
- The sale, purchase, or transfer of a company;
- Long-term business agreements (e.g., annual shipments of products from one business to another business over the course of many years);
- The shipment and delivery of goods in general;
- Construction of a commercial building; and
- Various other types of short-term business ventures.
Also, contracts that are formed between two sellers (e.g., merchants or businesses) often have different requirements than contracts made between a buyer and a seller (e.g., merchants and consumers).
For example, suppose two merchants want to conduct business. In their arrangement, one of the merchants would be responsible for supplying certain products to the other and the other merchant would be liable for purchasing and paying the initial merchant for those supplies. The two merchants would most likely enter into a contract for supplying and purchasing the specific products or equipment.
In such a scenario, the merchants should include the following elements in their contract:
- The names of the parties or businesses forming the contract;
- The terms and conditions of the contract, including the quantity of items, the date to ship or receive them, how often they are shipped, and so on;
- When and how the shipping party should be paid;
- When and how the parties may terminate the contract;
- How the parties should resolve any disputes regarding the contract (e.g., arbitration);
- What law will govern the contract (not necessary if the parties do business and have their headquarters in the same state); and
- Any other additional instructions that the parties see fit.
Additionally, the contract should also be in writing. Although it is not always necessary to retain a lawyer, the parties should each consider hiring one to at least review the terms of their contract before signing it.
What If a Small Business Contract Has Been Breached?
In a business context, a breach of contract can happen when one of the parties fails to perform the terms that were agreed to in the contract. For instance, a party may fail to pay for the goods shipped or a party may have delivered the wrong goods to the purchaser. Both of these actions would be considered a breach of the parties’ business contract.
If a breach occurs, then the non-breaching party should make sure that they can prove the following:
- That the parties entered into a valid and legally enforceable contract;
- That the non-breaching party upheld their end of the bargain and performed their necessary duties;
- There was in fact a breach of the contract terms (the claim will be more successful if there was a material breach as opposed to a minor breach); and
- That they can prove their losses due to the breach with reasonable certainty.
After these elements are established, the non-breaching party should review their contract to see if there are any clauses pertaining to what to do in the event of the breach and what type of behavior amounts to a breach.
If a breach is present, then they should try speaking with the breaching party to see if there is a way to remedy it without court intervention.
If there is no way to fix it or the way in which the breaching party decides to fix it is not sufficient, then the non-breaching party may file a claim for breach of contract in court. The court will then decide whether or not to award the non-breaching party with their requested remedies.
If I Own a Small Business, Do I Need All of My Contracts to be in Writing?
Regardless of whether the business is small or large, it is always in the parties’ best interests to have a contract that is in writing. The reason for this is because it is very difficult to prove there has been a breach when the contract is an oral one.
However, just because a contract is made orally does not mean that it is not enforceable. This is especially true where a party can point to sufficient evidence that shows a contract has been made, such as having prior dealings with the party or routinely made shipments that have been ongoing for a certain number of years.
Do I Need a Lawyer for Help with a Small Business Contract?
As previously mentioned, while it is possible to create a small business contract without the help of an attorney, it is generally not recommended. At the very least, you should consider hiring a local business lawyer to review your contract before signing it to ensure that it is valid, legally enforceable, and does not contain any terms you do not wish to fulfill.
You may also want to speak to a business or contract lawyer to make sure that the contract meets all of the elements required for your particular state’s contract laws. This is especially true when it comes to commercial leases and employment contracts since both can involve complex laws.
Additionally, if you think that your small business contract has been breached, then you should also contact an attorney for help to see if there are any remedies available for your situation.