Importance Of Legal Agreement In Business

Importance Of Legal Agreement In Business

legal agreement

Ever loaned money to your friend who promised to pay you back, but he never did? Ever being told, “Yes. We’ll buy from you, please import the goods for us”, but that customer never came back to you? Ever hired an employee without creating an employment contract and he ran away just after his training period got over?

How did you feel after such experiences? Cheated? Helpless? Incapable of suing?. Almost all of these, if you did not make a legal written agreement or a contract with them. A business, be it small or large, should always have the good habit of making legal agreements, i.e. Contracts. A legal agreement or a contract, in simple terms, is a mutual understanding of two parties on a common thing.

Legal Agreement

A contract should always have, one, an offer and second, an acceptance to the offer. For instance, A agrees to deliver 10 cartons to B for a consideration of Rs.100/- is a clear-cut offer and acceptance.

Besides ‘offer and acceptance’, a contract has a few basic conditions that must be met for it to be legally binding. Firstly, the offer made and acceptance given should be obtained by free consent of the parties. There should be no coercion, undue influence, fraud, misrepresentation or mistake of fact while contracting.

Secondly, the consideration should be lawful i.e. it should not be forbidden by law, be against public policy, restrict personal liberty or be immoral and fraudulent. For example, A paid B for trafficking of women and children. It is an invalid contract.

A legal agreement  is not a mere piece of paper for signing between two parties but it protects one business entity with its rights and remedies.


An  legal agreement also create responsibilities, conditions, manners, time limit, monetary issues, etc so that every corner of the  legal agreement is properly sealed failing which it may result unforeseen loses.


You May also be interested in Reading: Features of ROC Software


 The last requirement is for the contracting parties to be competent. This means that the parties entering into a contract should not be minor, should be of sound mind when entering into contract and should not be banned by any other law to agreement

After such conditions are met, a contract, herein, is successfully made. Now the question arises, why the need of a legal agreement/contract?

  • Lists down in clear terms the intention of parties legal agreement

Intention is a very crucial part of a contract. Without a legal agreement, it is not possible to make out the intention of parties. For instance, If a man expires without making a will, it cannot be inferred if he was close to his first son or second, unless he had clearly set it out in his will. Thus his property is distributed equally. So when two parties agree to contract, they have a meeting of minds i.e. consensus ad idem at the same thing. So if A agrees to buy 10 chocolates for a total of Rs.100 from B, he cannot later pay less than the amount agreed upon and neither can B charge him more. Hence, a clear intention of parties is revealed by the agreement


  • Easily amendable with consent of parties

A written contract gives an added advantage of amendment of contract. This means that if the parties wish to amend any provision/part of a contract, they can do so with mutual consent. But when one party agrees and the other does not, the contract lies agreement

  • Smooth and trouble-free dispute settlement

While making business contracts, usually parties also put a clause of Dispute Settlement. This clause mentions the remedies available with the contracting parties in case a dispute arises. The common methods of dispute settlement are amicable settlement, arbitration and approaching of courts. Thus, it creates a sense of security in the minds of contracting parties that they have a Right to seek agreement

  • Acts as evidence in a Court of Law

When a legal agreement is written in clear terms and a dispute arises between the contracting parties, the contract can act as an evidence to support the claim of the concerned party in the Court. It acts as a record of all ‘meeting of minds’ agreed upon by the parties. Any oral legal agreement between two parties cannot be produced in the court as agreement

You May also be interested in Reading: Features of tds Software

Various other benefits are linked to making of contracts in business. In the image of customers, the business starts to look more organized and well-planned, the employees feel satisfied and protected, and the suppliers feel assured of adequate payments and accountability of the business when a written contract exists between agreement

Thus, it is important that a business-man ensures that for every transaction he undertakes in the name of the business, it is written and mutually consented by the contracting parties.

Please visit to avail the service of Best Legal Software.