Editorials: 2025 Vol: 28 Issue: 3
CONTRACTS 101: WHAT EVERY ENTREPRENEUR SHOULD KNOW ABOUT BINDING AGREEMENTS
Lukmman Hakim, Chongqing University, China
Contracts are the lifeblood of business relationships, providing structure, clarity, and legal protection for entrepreneurs navigating the complexities of commerce. This article introduces the fundamentals of business contracts, including their essential elements, types, and common pitfalls. It emphasizes the importance of understanding contractual obligations, negotiation strategies, and legal enforceability. By mastering the basics of binding agreements, entrepreneurs can safeguard their interests, foster trust, and build resilient partnerships.
INTRODUCTION
Whether you're hiring employees, leasing office space, or partnering with suppliers, contracts are everywhere in business. For entrepreneurs, understanding how contracts work is not just helpful—it’s essential. A well-drafted contract can prevent misunderstandings, protect your assets, and ensure that all parties are held accountable (Collins, 1989).
A contract is a legally binding agreement between two or more parties that creates mutual obligations enforceable by law. It can be written, oral, or implied, though written contracts are generally preferred for clarity and legal strength (Eisenberger et al., 1986).
Entrepreneurs encounter various types of contracts depending on the nature of their business. Common examples include: Define the terms of employment, including salary, duties, confidentiality, and termination clauses. Used when hiring vendors or freelancers. They outline scope of work, deadlines, and payment terms. Detail the roles, responsibilities, profit-sharing, and dispute resolution mechanisms between business partners. Cover the rental terms for commercial property, including duration, rent, and maintenance responsibilities (Miceli, 1988).
Specify the terms of buying or selling goods or services, including delivery schedules and warranties. Each type serves a unique purpose and should be tailored to the specific transaction. Even simple contracts can contain complex language. Entrepreneurs should pay close attention to: Conditions under which the contract can be ended (Mustapha et al., 2012).
Specifies who bears responsibility for damages or losses. Protects sensitive business information. Outlines how conflicts will be resolved (e.g., arbitration, litigation). Covers unforeseeable events that prevent contract fulfillment. Negotiating from a position of knowledge and preparation can lead to more favorable outcomes. Cancellation of the contract (Near et al., 2004).
CONCLUSION
Contracts are more than just paperwork—they’re strategic tools that define relationships and protect interests. For entrepreneurs, understanding the basics of contract law empowers better decision-making and builds a foundation for sustainable growth. Whether you're launching a startup or scaling a business, mastering contracts is a skill that pays dividends.
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Received: 02-Jan -2025 Manuscript No. JLERI -25-15611; Editor assigned: 03-Jan -2025 Pre QC No. JLERI -25-15611(PQ); Reviewed: 17-Jan -2025 QC No. JLERI-25-15611; Revised: 21-Jan -2025 Manuscript No. JLERI-25-15611(R); Published: 28-Jun -2025