Importance Of Legal Agreement In Business

Importance Of Legal Agreement In Business

Ever loaned money to your friend who promised to pay you back, but he never did? Ever been 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 of 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 the 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.


A legal agreement also creates responsibilities, conditions, manners, time limits, monetary issues, etc so that every corner of the legal agreement is properly sealed failing which may result in unforeseen losses.


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 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 a contract, and should not be banned by any other law to contract. legal agreement

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

  • Lists down in clear terms the intention of the 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 the 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 a 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 the parties is revealed by the contract. legal agreement


  • Easily amendable with consent of parties

A written contract gives an added advantage of amendment of the 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 unamended. legal 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 to 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 Justice. legal 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 evidence. legal agreement

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Various other benefits are linked to the 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 them. legal agreement

Thus, a businessman must ensure that every transaction he undertakes in the name of the business, it is written and mutually consented to by the contracting parties.

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Volody is a pioneer in Contract Lifecycle Management (CLM) software since 2016. Our innovative AI-powered software automates tasks, extracts insights, & improves efficiency. Volody has delivered exceptional results for numerous firms, including small businesses & Fortune 500 companies across the globe. In the fast-paced world of CLM software, Volody stands as a consistent innovator & a partner you can trust.