The Importance of Contracts
It is essential to have legal documents ready for any kind of business deal so that the agreement can be upheld in court. These documents can help establish a set of guidelines and regulations, and then used to record a shared understanding of their working relationship or rules for the parties’ future requirements.
Negotiations typically take place so that all parties have a fair and equal chance to gain from the agreement. It succinctly and clearly describes the contract's terms and conditions, eliminating any misunderstandings between the parties and defining their respective expectations.
Why are Contracts Important?
- They delimit the scope of the agreement. A contract serves as a record of obligations and commitments. Carefully delimiting the terms and conditions in any contract manages parties’ expectations on what shall be performed by the other, when a breach occurs and how to seek relief for contractual violations.
- They avert conflict and minimizes risk. Parties study contracts several times to make sure they are happy with the obligations they are legally binding themselves to perform. Negotiations typically follow with the goal of averting future disagreements, laying the groundwork for a solid collaboration moving forward.
- They mutually protect parties to the contract. Contracts simplify enforcement and ensure compliance since it binds parties to uphold their respective commitments, at the risk of getting sued in the event of a breach.
- They expressly provide payment terms. Contracts ensure that payment is made in a timely manner. This makes it easier for the client to pay for the services rendered to them by being offered as many options as possible.
- They are indicative of the company’s principles. Contracts can exhibit how well a company can establish working relationships and fulfill its commitments. A company’s inability to carry out its responsibilities under any contract will reflect poorly on its reputation and can hinder future agreements.
