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Essentials of Business Contracts

What Makes a Business Contract Valid

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Being a business owner means that you will have to sign many contracts, with vendors, customers, and others. Here are the essential elements of a business contract:

What is a Valid Contract?
A valid contract is one that is enforceable by a court. You want to be sure any contract you sign is enforceable.

  • What Makes a Contract Valid?
    A valid contract is one that includes all the essential elements required for business contracts:
    • Offer, Acceptance, and Mutual Consent
      Every contract must include a specific offer and acceptance, and it must be consented to by both parties of their free will. Neither party can be coerced or forced to sign the contract, and both parties must agree to the same terms.

    • Consideration
      There must be something of value exchanged between the parties. The thing of value may be money or services, but both parties must give something (otherwise, it is a gift, not a contract).

    • Sound Mind
      Both parties must be of "sound mind." This definition requires that neither party be a minor, both must be sober (not under the influence of drugs or alcohol when signing the contract), and neither can be mentally deficient.

    • Legal Purpose
      The contract must be for a legal purpose. It cannot be for something illegal, like a selling drugs or prostitution.

    When Would You Take a Contract to Court?
    Most contracts are completed to the satisfaction of both parties. You would take a contract to court when one party has 'breached' the contract, or failed to fulfill his or her agreements under the contract.

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