If I give you this, what do you give me in return? And what happens if I don’t give it to you or you don’t pay me for it? That’s a very simplistic way to describe a business contract. It is an important tool in business relations between entrepreneurs, companies or international partners. With a properly drafted commercial contract, you can minimise risks and avoid future disputes. In this article, we will look at the different types of commercial contracts and trends in contract law.
A commercial contract is a legal agreement between two or more parties. As a legal arrangement, it sets out the terms of a commercial transaction between the parties. A commercial contract can be in written or oral form. However, for legal certainty, it is generally always recommended to conclude a contract in written form. For some contracts, such as a real estate purchase contract or a licence agreement, the written form is even mandatory.
A properly drafted and concluded contract will reduce the risk of disputes with the other party. In addition, the contract provides both parties with legal tools to enforce their rights should one side or the other breach the agreed terms.
The legal framework for commercial contracts is mainly governed by the Civil Code, which contains the general rules of contract law. However, in addition to the latter, other specific rules may also apply to contracts, such as the Companies Act or international legal norms, such as the Vienna Convention on Contracts for the International Sale of Goods.
The parties are free to decide whether to enter into a contract and what the content of the contract will be. A contract can only be amended or cancelled if all parties agree to it. However, a contract can also be cancelled unilaterally in cases where the law allows it (typically withdrawal for material breach of contract).
Often all it takes is one word and everything is different than you would like. Don’t underestimate the preparation of contracts and avoid any generic templates. Good quality commercial contracts usually do not have a template and, more importantly, you cannot be sure that they adequately cover your contractual relationship.
Given the number of entities and their relationships, there is also a wide range of commercial contracts. These differ according to the purpose and object of the contractual relationship. The most common types include the following contracts:
A contract of sale is probably the most common type of commercial arrangement that most of us come into contact with. It is used for the sale of goods and governs the terms of delivery, quality, price and warranties.
The contract of sale may also include specific terms and conditions, such as warranty or liability for defects. For example, if any companies are planning large business transactions, it is quite common for them to include repayment terms, delivery terms and penalties for non-compliance in the purchase agreement.
When used: An electronics supplier sells a large number of laptops to an e-shop. You enter into a purchase contract with them when you order the goods. At the same time, he enters into a contract with the individual laptop suppliers.
This type of contract is used when contracts are being carried out, for example for construction work or software development. The essence of a works contract is the contractor’s commitment to carry out the work on his own responsibility. The client, in turn, undertakes to pay for this work. This type of commercial contract should not lack completion dates, who is responsible for what defects and how both parties can withdraw from the contract.
When to use: When an IT firm has an outside vendor create its own custom software, it enters into a contract for work with that vendor.
Formally, this contract addresses a work contract or unnamed contract. This type of contract is most commonly used in consulting, IT services, marketing, or legal services. A service contract governs the relationship between the service provider and the client and sets out the terms and conditions under which the services will be provided. The terms of payment, liability for damages and the possibility of terminating the contract are important elements.
When it is used: For example, a small business owner orders long-term management of their social media from a marketing agency.
Tip: Are you selling or buying a car and need a sample car purchase contract? Use the one prepared by our lawyers to help you prepare a flawless purchase contract.
The distribution contract is typically used to regulate the relationship between the producer and the distributor. This type of contract sets out the terms of product distribution, exclusivity, pricing and marketing support. You would often also find trade secret protection clauses in distribution agreements. They also often limit the distributor’s ability to sell competing products.
When it is used: A car company contracts with local car dealerships to distribute its cars.
This type of arrangement is used when the owner of intellectual property (licensor) wants to grant a third party (licensee) the right to use that intellectual property under predefined conditions. It most often covers copyrights, patents, trademarks or utility or industrial designs. It can be exclusive (the licensor cannot grant the same licence to other entities and often cannot continue to use it itself) or non-exclusive (multiple entities can obtain the licence at the same time and can use it themselves) and must include royalty terms, the duration of the licence and the possibility of termination.
When it is used: A toy company obtains a license to produce figures based on a popular movie brand.
This type of contract is a legal agreement between a franchisor (franchisor) and a franchisee (franchisee) whereby the franchisee is allowed to use a business model, know-how, brand and support of the franchisor in exchange for a financial payment to the franchisor. While the franchisor typically provides know-how, training and support, grants the right to use the trademark and trade name, and conducts marketing and promotional activities, the franchisee adheres to established operating standards, pays franchise fees, and uses only products and services that the franchisor approves. The agreement thus contains the terms of cooperation, royalties and rules for operating the franchise.
When it is used: An entrepreneur opens a restaurant under the brand name of a well-known fast-food chain.
You may have encountered this type of business contract if you took out a loan to buy a home or a car, for example. This contract sets out the terms and conditions under which one party(the lender) will provide funds to the other party (the borrower). The contract must also state all interest rates and repayment terms.
When it is used: A company takes out a loan to have enough money to buy new production machinery.
Tip: Did you know that the moment you travel by plane or bus, you have entered into a contract of carriage? Find out more about the terms and conditions associated with travel in our article.
Do not look for a template for a commercial contract. Each situation is so specific that it requires careful tailoring. Sample commercial contracts circulating on the internet may not cover all the information you need. So, if you need to treat a contractual relationship, use one of our services, which include contract drafting, and we will help you.
If we were to look at a business contract from a very general perspective, then every such contract should include:
Progress and trends are not avoiding the field of commercial contracts. The development of technology is leading to the digitalisation of contractual processes. One of the popular tools of recent years is electronic signatures, which speed up the conclusion of contracts and ensure the legal validity of documents. Modern software tools, in turn, enable the automatic generation and management of contracts with minimal need for human intervention, saving companies time in a big way.
Today, more or less no business can do without a quality commercial contract. Use our experts to draft them, carefully setting the terms and conditions and helping you to minimise risks. A properly drafted commercial contract will ensure smooth business transactions.
A commercial contract is a legal agreement between two or more parties that sets out the terms of a business relationship – who delivers what to whom and what they get in return. It provides legal certainty, protects against disputes and regulates such things as delivery terms, price, warranties and liability for defects. The most common types include a sales contract (sale of goods), a works contract (execution of a contract), a service contract (e.g. marketing, IT), a distribution contract (relationship between manufacturer and distributor), a licensing contract (use of intellectual property), a franchise agreement (operating a business under an established brand) and a loan or credit agreement (provision of finance). A properly drafted contract must include identification of the parties, the subject matter, price, terms, liability for damages and termination options.
Our team of experienced attorneys will help you solve any legal issue. Within 24 hours we’ll evaluate your situation and suggest a step-by-step solution, including all costs. The price for this proposal is only CZK 690, and this is refunded to you when you order service from us.
Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 10 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.
In person and online. Just choose the appropriate service or opt for an independent consultation when you are unsure.
