Oct 01,2019 | 14 min read

Importance of Contracts In Business

Author - Associate Shereen Abdin

A contract is a formal document, accepted by both parties, employer and employee, and is the base for any flourishing business. Contracts provide better visibility to meet the duties and, achieve the objectives as agreed per the agreement. It serves as a great support for building a good rapport with the customer or the desired party.

Concerning this, Contract management is a strategy adapted to manage contracts legally signed with customers, partners, or employees. Contract management includes adjusting the terms and conditions in contracts and, ensuring adherence to the rules as per contract. Contracts guarantee a standard business procedure, by giving clarity of your requirements. It helps to achieve the desired goals easily and, serves as proof in case the expectations of one party is not fulfilled. It is viewed as breaching of the contract and, the person has to bear the loss for the service.

It is important to get your contract drafted and approved by a lawyer legally. A contract becomes inevitable due to the following reasons.

Proof of Details

The prime purpose of creating a contract is related to the recording of details, which both parties have agreed with mutual consent. It provides a precise knowledge of the services provided by the third party or monetary expectations to be met by the person. These details will serve as legitimate proof and is very important in a contract.

Avoids Misunderstanding

Misunderstanding is a common problem confronted in any business due to several reasons. To avoid such cases, drafting a contract is a mandate and, it is required for both parties to read the consented rules and abide by them. It has a large impact on the business as breaching the contract rules can lead to conflicts between the parties and thereby affect the business overall.

Provides Security

A contract document plays a pivotal role in making the parties secure as it clearly specifies the tenure of the contract and set of responsibilities. Here, an employer is lawfully responsible to pay the committed salary on time and, the employee is responsible to perform his duties as designated. Any deviation is considered contract breaching and, either of them has the sole rights to take appropriate action.

The contract can act as legal evidence if any of the party files a case against the other at times of contract breaching.

Provides Confidentiality

It includes an NDA (Non-disclosure agreement, which protects confidential information. According to this agreement, concerned parties are not entitled to reveal the business and, monetary transactions between them with any third person. In case of disclosure by either of them will be subjected to suffering as per contract rules, enforced by the law legally.

Acts as a Record of the Business

A written contract is a relevant record stating the mutual consent of the proceedings listed in the agreement. It can be used for future reference and, comprises information regarding the stipulated delivery timeline of any work assigned as per contract. The tenure of the contract is also highlighted in the agreement, which provides more clarity regarding the termination detail. However, the contract may be terminated in the worst case if the other party is not fulfilling the rules mentioned in the contract or bypassing the terms.


The above reasons make contracts inevitable for small-scale businesses to keep their information secured and, protect them from crooked investors. Besides, it can safeguard employees when employers refuse to abide by the contract rules by giving false commitments to employees and misguiding them.

However, drafting a contract agreement, taking into account all these factors is a challenging and time-consuming process. So, it is advised to seek the help of an expert law attorney to help you through the process.

Strict legal action to be taken against people who breach the contract agreement. This, in turn, will reduce the future chances of people failing to follow the rules stated in the contract. Most contracts are written based on the governing law section, which depends on the state in which the contract was enforced and, the law acts over the contract's viability.

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Lawyered Team

Lawyered Team