Understanding the Importance of Contracts in Your Small Business

Running a business requires you to sign numerous contracts that address a broad range of issues and significantly affect your operations. Whether a contract relates to providing your goods or services to customers, securing supplies and equipment, leasing facilities, or hiring employees, the terms of the contract establish your legal rights and obligations. Particularly for a small business, it is essential to ensure that your contracts are legally sound, maximize protection of your rights, minimize legal liability, and satisfy all requirements of Arizona law. Relying on a knowledgeable business law attorney for help with your business contracts is the best way to achieve that goal.

When Does an Enforceable Contract Exist?

A contract is an agreement that creates legally enforceable, mutual obligations between the parties. For an agreement to be legally valid and enforceable as a contract under the law, the agreement must include five specific characteristics: 1) Offer and acceptance, 2) mutual assent or intention, 3) consideration, 4) legal capacity, and 5) legality of purpose.

Offer and Acceptance

When one person (or company) proposes to provide something of value in exchange for something else of value from another person, the first person has made an offer. The person who receives the offer may either accept or decline it. If an offer is accepted, the offer and acceptance establish the terms of the contract.

Mutual Intention

Mutual assent or intention refers to a requirement that the parties to an agreement have a “meeting of the minds” and the intention to create a legally enforceable contract.


The consideration in a contract is the benefit that each person receives under the agreement. Consideration may be goods, services, money, or anything else that provides value or benefit.

Legal Capacity

Legal capacity refers to the ability to agree to contractual obligations, which generally requires that the parties are over the age of 18 years and are not legally incapacitated.

Legality of Purpose

A contract must be for a legal purpose. An agreement to accomplish an illegal purpose is legally invalid and unenforceable.

What Is Breach of Contract?

When requirements for a legally enforceable contract are met, a party’s failure to perform their obligations under the contract — which is referred to as a breach of contract — can subject that party to legal liability.

If you enter into an agreement that satisfies all the requirements for a legally-enforceable contract, the terms of the offer and acceptance establish your legal rights, obligations, and liability, as well as those of the other party (or parties) to the contract. Arizona statutes and case law, as well as federal law in some situations, govern the rights and liabilities of the parties to a contract.

If a breach of contract occurs because a party fails to honor or perform the terms of a legally valid contract, the parties may try to resolve the resulting dispute themselves. If there is not a mutually agreeable resolution, the party who was harmed may have to bring a legal action in court to recover for the losses caused by the breach.

The terms of the contract and applicable laws determine the legal remedies available to a person who suffers harm as the result of a breach of contract. In most cases, the legal remedy for breach of contract is monetary damages. Courts rarely force a party to perform the terms of a contract by a means other than paying damages.

How Can You Protect Your Contract Rights in a Small Business?

Every business contract should be in writing and signed by all parties to the agreement. While an oral agreement can be legally valid and enforceable in some circumstances, verbal agreements can be difficult to prove and enforce. If you rely on non-written agreements in your business operations, you put yourself and your business at risk by not adequately protecting your rights under the contract (including in the event of breach by the other party) and by creating the potential for breach of contract claims against you.

To maximize your rights and minimize your liability in business contracts, you should be very attentive to all the stated terms when you enter into any agreement. For small business owners, getting help from a business law attorney is the best way to protect your contract rights. Ask your lawyer to review every contract before you sign it. Your attorney makes certain that you understand all the terms of the agreement. If there are questionable or unacceptable terms, your lawyer can help you negotiate terms that are more favorable.

In addition, your lawyer should review all the form contracts that you routinely use in your business, whether they relate to customers, supply matters, employees, or other operational aspects. Having your lawyer review your standard forms and contracts is the best way to protect yourself against potential issues in the future.

Schedule a Free Consultation With an East Valley Business Law Attorney

In our business law practice at Peterson Law Offices, we understand that small businesses, whether new or established, often do not need a full-time lawyer but do need reliable, responsive legal counsel throughout the life cycle of the business. Our goal is to help your business succeed, grow, and thrive, while minimizing legal problems you encounter and finding the best solutions for the issues that do arise.

Our services include ensuring that you protect your contract rights for all agreements relating to your business. We provide contract review for new agreements, as well as for standard forms and contracts you use in your business operations. We always provide high-quality legal services at affordable prices — and your first consultation is free of charge.

We welcome inquiries from clients throughout the East Valley, including Queen Creek, San Tan Valley, Gilbert, Mesa, and Chandler. Schedule your free initial consultation by calling 480-878-5998 or using our online contact form.

Categories: Business Planning