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Issues related to contract law and agreement may be essential parts of business decisions. An entrepreneur should consider their principles while managing operations within a company and organizing partnerships with other firms. This paper discusses how the principles of contract law and agreement may be applied to possible business scenarios and shows the difference between them. It concludes that an entrepreneur should consider all existing and possible factors to make decisions related to contracts and agreements.
Entrepreneurs that are starting any type of business can benefit from knowing the principles of contract law. According to Mayer et al., contract law is a vital part of modern economic and cultural aspects of society (326). Its aim is to create incentives for the parties that exchange services or goods and eliminate possible adverse outcomes of their cooperation. Contract law may have a significant impact on business as a formal written contract secures decisions and agreements, providing a legal basis for the parties’ claims and expectations.
For example, an entrepreneur owns a company that creates websites for individuals and businesses. He is contacted by an art school that offers $5000 for a website with a custom design. They create a contract that discusses the due date, the customer’s requirements, and other terms and responsibilities. If the art school refuses to pay the entrepreneur once the work is done, he or she will be able to file a lawsuit against the company.
Moreover, as many entrepreneurs hire employees to support their business, it is necessary to implement the principles of contract law in employer-employee relationships. For example, to secure the confidentiality of the information, it is crucial to have a signed agreement that requires a worker not to disclose sensitive data. This way, an entrepreneur may ensure that the information about his or her business ideas and financial operations will not be shared with his or her potential competitors and other individuals.
An agreement is different from contract law and usually presents its core part. Mayer et al. note that agreement may be shown in any form, including unspoken conduct but is generally expressed through an offer and an acceptance (356). An agreement that is not followed by a contract has no legal effect. An entrepreneur should consider this fact while making business decisions. For example, a small business entrepreneur discusses a potential partnership with a larger company that is owned by his or her college friend. The collaboration may potentially result in the promotion of his or her firm.
The larger organization asks for the entrepreneur’s financial contribution of $2000 to ensure that the project has the sources for advertisement and promotional products. As the entrepreneur knows the owner of the company and can trust him or her, he can decide to agree on the terms without signing a contract. In this case, however, if the larger company violates the agreement, the entrepreneur cannot file a suit against it. As the partnership involves financial issues, it is advised to create a contract to secure the operation and have a legal basis for possible complaints.
The purpose of contract law is to ensure the security of operations or agreements between the parties, as well as eliminate possible adverse outcomes of a partnership. On the contrary, an agreement not followed by a contract has no legal effect, which may potentially have a negative impact on business. While making decisions, entrepreneurs should consider both the current situation and possible circumstances to ensure that their actions are beneficial for their organizations.
Mayer, Don, et al. Law for Entrepreneurs. The Saylor Foundation, 2012.