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Commercial Contracts: What Are They and How to Automate Them

Not having commercial contracts is a bad business practice.

Such contracts serve a specific purpose ― and that’s to legalize the arrangement and agreement of the parties concerned. In short, they’re company protection from lawsuits and penalties.

Here’s a case where a commercial contract was used to protect.

The legal battle of Netflix against Relativity Media. Their multi-year contract was breached when five Relativity Media movies were shown on other platforms after they were licensed exclusively for the streaming service. As a penalty, the latter had to pay $9.6 million.

As you see, when businesses enter into a relationship, they’ll definitely need a contract outlining their obligations.

In this article, we’ll discuss the commercial contract, its types, and the key elements that you should include in drafting. We’ll also introduce legal workflow software for managing commercial contracts better and protecting your business.

Without further ado, let’s dive into it!

What are commercial contracts?

A commercial contract is a legally binding document that specifies what each party has to do or refrain from doing. This agreement lay out the parties’ responsibilities and what they’re entitled to receive in return.

Some common business-related subjects that might be covered in a commercial contract are: 

  • sale of goods or services 
  • hiring of employees
  • usage of intellectual property
  • joint ventures
  • lease of property

What are the key elements of a commercial contract?

So to ensure they’re enforceable, you need to include the six key commercial contract terms:

  • an offer
  • an acceptance
  • consideration
  • intention to create legal relations
  • legality and capacity
  • certainty

To know more about the essential elements of a contract, read this article: 6 Essential Elements of a Contract — Avokaado Blog

Additionally, there are a number of key clauses that should be included (if possible) in every commercial contract. Here are they:

  • duration of the contract
  • a clause outlining the duties and responsibilities of each party
  • clause detailing the terms of payment
  • clause outlining the procedures for handling disputes
  • for businesses operating in different states, including a clause specifying the jurisdiction in which any disputes will be resolved
  • indemnification clause
  • the right to terminate the contract
  • limitation of liability
  • force majeure

Types of commercial contracts

If we’re talking about how commercial contracts are generally processed, there are two general types: either verbal or written.

  • Verbal contracts are less formal and can be made without involving lawyers. However, they can be difficult to enforce if there’s a dispute because there’s often no clear record of what was agreed to.
  • Written contracts are more formal and may need to be prepared by the legal team. They’re enforceable since both parties have a full understanding of the terms of the agreement prior to signing.

Now, when it comes to the context of commercial contracts, they can come in different types. Each with unique commercial contract terms and conditions designed to meet the specific needs of the businesses involved.

Take them for instance.

Purchase agreements specify the terms of the transaction ― price, delivery date, and any warranties. While joint venture agreements detail the terms of the businesses coming together like responsibilities, and profits.

Nevertheless, getting legal advice before signing any contract is always a good idea ― no matter what type you’re dealing with.

Commercial contracts examples

Here’s the thing, any contract that is made for the purpose of conducting business can be considered a commercial contract. That’s why they’re used in a variety of industries.

Let us share some examples of them ― the written type:

  1. Employment contracts

A contract of employment is an agreement between the employer and employee. This type of commercial contract specifies the details of the employment relationship like the job description, salary, and benefits. There are times that it also includes provisions for the termination of the agreement.

  1. Service agreements

Most often, digital businesses offer services. Thus, a service agreement is a commercial agreement that details a service to provide in exchange for payment. They’re a way for businesses to outsource certain tasks or projects.

  1. Loan agreement

A loan agreement is a contract between a borrower and a lender that sets out the terms of a loan. It details the loan amount, the interest rate, the repayment schedule, and other terms that the parties have agreed to.

  1. Partnership Agreement

If two or more people want to start a business together, it’s necessary to have a partnership agreement in place. This contract outlines the expectations and duties of each partner in a business relationship including clauses like duty care and profit-sharing.

  1. Software License Agreement

Most software applications are licensed, not sold. A software license agreement is a contract between you and the owner of the software that lets you use it under certain conditions such as license fee, restrictions on your use, and for how long you can use it.

  1. Intellectual Property Assignment and Transfer Agreement

An intellectual property agreement is used when one party wants to assign or transfer their rights to intellectual property to another party. This commercial agreement is typically used when companies work together since it’s inevitable to share information.

  1. Lease Agreement

Lease agreements are contracts that grant the use of property, area, or equipment in exchange for rent. The owner of the property is called the lessor, while the tenant is called the lessee. A lease agreement should specify how long the lessee has the right to use the property and how much rent is due. It should also outline any restrictions on whether subleasing is allowed.

  1. Non-disclosure Agreement

A confidentiality agreement (also known as NDAs) is used whenever sensitive information needs to be shared between parties. This ensures that the content remains confidential and can’t be used without permission from the other party. NDAs are commonly used in business deals, employment contracts, and research agreements.

  1. Data Processing Agreement

In compliance with data privacy laws, a DPA is a commercial contract requirement for almost every company. A data processing agreement is a contract between a company and a service provider that defines the terms of how the service provider will process a company’s data so it’s not misused or mishandled.

  1. Shareholders’ Agreement

While not required by law, a shareholders’ agreement protects the interests of the parties involved in a company. This is a contract among shareholders that defines their rights and responsibilities. Usually, it states that the owner of a company agrees to a set of rules about how the company will be run.

Automating workflows for commercial contracts

Uncomfortable truth is that contracts typically involve a lot of back-and-forths. Yes, it can be a time-consuming process.

However, there’s a way to automate some of the workflows of document lifecycle using a contract management solution. You’ll save time drafting commercial contracts to their completion. One such solution is Avokaado.

Here’s how Avokaado does it.

Step-by-step commercial contract automation with Avokaado

Let’s give you 6 steps on how you can automate your commercial contracts with the Avokaado contract lifecycle management platform.

  • Faster drafting using automated templates

Why start from scratch that requires more preparation? Pre-drafted contract templates from the Avokaado store are already done for you, you just have to fill in the blanks by answering the generated questionnaire. Not only does this save time, but it also reduces the chances of making avoidable mistakes.

  • A centralized database of contracts

A single repository for all contract-related information helps team members to access up-to-date contracts 24/7. It streamlines contract workflows by having all legal documents stored in one place. Not only that, the Avokaado database is clause-based for automatic cross-references of previously used clauses.

  • Easy collaboration with your team and external contributors

When your preliminary draft is done, let others review it to suggest more input or attach additional documents. Assign contract collaborators with different rights ― viewers or editors. You can even let external contributors negotiate the commercial contract easily by sharing a public link.

  • Automated approval workflows

By setting up an approval workflow, businesses can make sure that all contracts are reviewed and approved by relevant stakeholders before they’re out. The contract automation tool lets you add approvers and/or signers from existing collaborators or [if needed] new users. That’s queueing contracts without hand-holding.

  • Efficient signing process

Digital signatures allowed people to sign virtually anywhere ― there’s no need to worry about lost or misplaced copies. Also, they’re legally binding so there’s no need to doubt the validity of the contract. Avokaado has digital contract signing apps integrated within the platform that lets you collect digital signatures on the same platform that created the contract.

  • Personal workspace for contract reporting

When we say end-to-end contract lifecycle management, it means everything you need for legal document creation and management. Your personal workspace in Avokaado lets you do the following:

  • create new documents
  • monitor document statuses
  • track hot contracts
  • see deal statistics

Working with commercial contracts

With contracts, you can avoid misunderstandings and disagreements that can lead to missed opportunities or even legal trouble. Commercial contracts protect both the buyer and the seller in any commercial transaction.

So having a good understanding of them lets you draft and manage commercial agreements well.

However, if you don’t always have the time to assist in reviewing contracts, it’s your best option to work with legal document automation solutions like Avokaado. It can help speed up the process of creating contracts to executing them while guaranteeing their enforceability.

Ready to automate your commercial contracts with our contract lifecycle management software?

Try modern Avokaado CLM free for 7 days.


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