Contracts 101: What is a Contract?

Contracts are a powerful tool for businesses of all sizes. They help ensure that deals are well thought out, provide clarity on obligations, and serve as a critical reference if disputes arise. Whether you’re a startup in Kansas City or a small business in Boulder, understanding the fundamentals of contract law can help you protect your interests and avoid costly mistakes.

In this post, we cover three cornerstones of contract law every business owner should know.

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What is a Contract?

A contract is simply an agreement between two or more parties that creates legally enforceable obligations. In legal terms, a contract requires an offer from one party, an acceptance by the other, and something of value from each side. This agreement is often called a “meeting of the minds.”

Importantly, a contract does not have to be in writing to be legally binding. Oral contracts are generally enforceable, though they can present challenges when it comes to proving the agreed terms.

Are Oral Contracts Enforceable?

While oral contracts can be legally valid, they are much harder to enforce because there is often no clear documentation of the terms. To protect yourself:

• Always try to put contracts in writing and have all parties sign.
• If an oral agreement is made, follow up with an email outlining key terms and ask the other party to confirm.

When Must a Contract Be in Writing?

Some contracts must be in writing to be enforceable. This is dictated by a legal principle called the Statute of Frauds, which generally applies to agreements involving:

• Real estate transactions
• Significant debts
• Marriage agreements
• Contracts that cannot be performed within one year
• And other similar, important contracts

Each state has its own specific Statute of Frauds requirements, so it’s important to check applicable laws when drafting agreements.

You Don’t Need Legalese

Legal jargon isn’t necessary for a contract to be valid. In fact, overly complex language just makes contracts harder to understand.

For example, the simple sentence: “Tim will paint Bob’s house on July 1, 2025” is just as enforceable as a complex legalese version: “Tim covenants, promises, and hereby agrees to paint Bob’s house on the first day of July, 2025.”

In most cases, contracts should use clear, straightforward language that avoids ambiguity. Well-drafted agreements make it easier for all parties to understand their rights and obligations. (Check out this post to learn five simple drafting rules.)

Bonus Tip: Clearly Identify the Parties

One of the most common contract mistakes is misidentifying the parties. If you are signing on behalf of a business, the contract should:

• Use the business’s legal name in the opening paragraph (not your personal name).
• Ensure that the signature block makes it clear you are signing in a representative capacity, not as an individual.

Failing to do this could unintentionally make you personally liable for obligations that should belong to your business. (Learn more in this post.)

Final Thoughts

Contracts are one of the most important legal tools for any business. Whether you’re operating in Kansas City, Boulder, or beyond, taking the time to understand basic contract principles can help you avoid disputes and create stronger agreements.

*This article is general in nature and is not legal advice.