13 Types of Contracts You Need to Know About

For many in the legal field, contracts are as common as the daily newspaper. Corporate lawyers, employment attorneys, and even real estate law professionals must know the ins and outs of pacts of all kinds, from general business agreements to detailed employment contracts.

Understanding the nature of these agreements and the role they play in facilitating and enforcing business arrangements is essential for lawyers to do their job effectively. Here’s a look at 13 of the most common types of contracts, along with ways legal professionals can use artificial intelligence (AI) and other tools to craft and review them more easily.

What Is a Contract?

A contract is a legally binding agreement between two or more parties. It formally outlines specific terms, along with the rights and obligations of everyone involved. As long as all parties understand and mutually agree to the terms and are legally eligible to enter a contractual agreement, a failure to comply could be subject to legal action. That makes contracts an important form of risk mitigation in both personal and business relationships. 

Contracts can be written or oral, but written contracts are much more easily enforceable in court. Without a written record of the agreement, enforcement relies on other forms of evidence, such as witness testimony or a record of conduct.

Expressed vs. Implied Contracts

While express contracts clearly outline the terms of an agreement either verbally or in writing, implied contracts are based on the conduct and circumstances of the parties involved. This further blurs the boundaries of what constitutes an official agreement.

Anytime you receive a service, whether from a contractor or your favorite waiter, you enter into an applied contract to pay for that service. Simply borrowing an item from a friend could be construed as an implied contract to return the item or replace it if lost or damaged. 

The key thing to remember? Both types of contracts are legally enforceable as long as the court can verify them.

Bilateral vs. Unilateral Contracts

Most contacts are bilateral, meaning both parties agree to do something in return for something else. However, some contracts are unilateral, meaning only one party is bound to fulfill its obligations.

In unilateral agreements, the contract doesn’t officially take hold until the other party completes a specified action. Insurance is a good unilateral contract example— an auto insurer is only bound to pay you if a covered event damages your car.

Typical Contract Elements

A contract must include specific elements to be considered legally binding. Again, these elements don’t need to be written down to create an enforceable agreement. 

Typical contract requirements include the following:

• Offer: Contracts must include a clear proposal with specific actions, outlining clear terms and conditions for fulfillment.
• Acceptance: All parties must agree to the terms as written, without any modifications after the fact.
• Consideration: A legal contract always involves exchanging something of value, whether money, services, or specific promises.
• Mutual assent: All parties must fully understand and agree to the terms. Misunderstandings may void enforceability. 
• Legal capacity: To enter a legally binding contract, a person typically cannot be a minor, mentally incapacitated, or under the influence of drugs or alcohol.
• Lawful purpose: Agreements to conduct illegal activities are null and void.

Contracts can include other elements, such as a termination clause or dispute resolution clause, to further define their terms. However, these aren’t required to make the contract legally enforceable.  

General Use Contract Types

General use contracts are not specified for use in any particular industry. They serve broad purposes and apply in various contexts. Think of them as contracts for everyday transactions. Here are a few general contract examples common to the legal industry.

1. Simple Contracts

Many legal and business dealings involve a wide range of simple contracts that may be written, verbal, or simply implied. These arrangements don’t require extensive details to define the terms. For instance, if a firm hires a freelance designer to update its website, a simple email exchange agreeing on price and delivery date may suffice as a legally binding contract. 

Simple contracts are quick and easy to execute, making them ideal for situations in which a lengthy formal document isn’t required. However, if there is a breach of contract, they may fall short or be difficult to enforce without a written record.

2. Loan Agreements

Loan contracts are agreements between creditors and borrowers outlining the terms for loan disbursement and payback. These pacts include details such as the loan amount, interest rate and type, payback period, and payment schedule. 

Loan agreements may also outline any collateral required from the borrower and repercussions for default, such as late fees, penalty interest, or asset seizure. These contracts are integral to all sorts of personal and business transactions, as they provide structure to a repayment agreement and legal protection for creditors and borrowers.

3. Lease Agreements

Lease agreements are contracts between landlords (lessors) and tenants (lessees) for renting residential or commercial property. They can be set for a fixed term with a defined start and end date or with the option to renew monthly.

Leases also contain specific terms about the use of the property and who is responsible for things like repairs and maintenance. They’re essential for outlining tenant and landlord responsibilities, establishing predictable income for property owners, and providing legal protections for both parties.

Legal Contract Types

While any enforceable contract is technically a “legal contract,” specific legal arrangements define rules around issues like compliance, liability, and various legal protections. Here are some of the most common legal contracts attorneys should know.

1. Non-disclosure Agreements

Businesses frequently need to protect sensitive data, trade secrets, or other intellectual property. Non-disclosure agreements (NDAs) are data contracts between a business and its employees, contractors, or other third parties prohibiting them from sharing protected company information.

An NDA specifies the information to be kept confidential and outlines any specific rules around handling the data or trade secrets. They may be permanent or define a specific timeline for confidentiality. These contracts give an organization legal recourse for information breaches, but they may limit partnership possibilities. 

2. Power of Attorney 

Power of attorney (POA) gives an individual (the agent) the right to act on behalf of another (the principal). Depending on the scope of the agreement, POA may apply to specific responsibilities such as financial or health matters, or it could be comprehensive in the event the principal becomes incapacitated. This type of contract must specify what triggers the POA and when it ends. 

Attorneys in estate planning, elder law, real estate, and healthcare will be especially familiar with these agreements. POA allows the principal’s affairs to continue uninterrupted and prevents cumbersome court battles if someone is unable to speak or act for themselves. However, family members may disagree with the arrangement or have concerns over the agent’s trustworthiness.

3. Indemnity Agreement

Indemnity agreements are more complicated contracts in which one party agrees to compensate another for certain losses or damages. They’re especially common in high-risk industries such as business, construction, real estate, and insurance.

The scope of an indemnity arrangement can vary significantly. In the most common type — limited form indemnity — the indemnifying party agrees only to compensate for damages they directly cause. Tenants, for instance, usually agree to compensate landlords for any property damages they’re responsible for. The point is to limit risk on the part of the business seeking compensation.

4. Settlement Agreements

Settlement agreements are one of the most common types of contracts used in the legal profession. These legally binding arrangements resolve disputes between two or more parties without the need for a trial. 

Settlements are widely used in all sorts of personal and business disputes, such as battles over employee compensation, child custody arrangements, or civil lawsuits. They typically define the terms of compensation or other agreed-upon actions and may also include a clause to clarify that settlement doesn’t constitute an admission of guilt. 

Settlement agreements are generally preferred to lengthy and expensive court battles but may cause unfair outcomes if one party feels pressured into the arrangement.

5. Non-compete Agreements

A non-compete agreement (NCA) is a contract between a company and an employee, contractor, or business partner, preventing them from competing directly with the company for a specified period. For example, an NCA may specify that an employee is not allowed to join a competitor or start a rival business for 12 months after resigning.

NCAs are designed to protect a company’s trade secrets and other competitive advantages within a specific market. They also safeguard the resources a company invests in its employees and other partnerships. However, some states ban or limit the use of NCAs to project workers' rights or limit corporate power.

Common Business Contracts

Other contracts fall into the bucket of small business or corporate contracts — agreements designed to facilitate business transactions or establish rights and obligations. Attorneys are often involved in drafting and reviewing the following types of contracts.

1. Partnership Agreements

Partnership agreements are contracts that define the key terms, responsibilities, and profit-sharing arrangement between two or more business partners. They may outline specific roles and degrees of authority for each partner, along with any voting rights, procedures for resolving disputes, and more.

Such contracts are common in law partnerships, and attorneys involved in business law will deal with them regularly. Partnership agreements are essential for clarifying business relationships, and some (such as limited liability partnerships) even help to limit tax liability for the ownership group.

2. Vendor Agreements

Vendor agreements define the specifics of exchanges between businesses and their vendors. They cover details such as pricing and volume of goods, delivery and payment timelines, and quality standards. Typical pricing arrangements include time and materials or a flat fee. Cost-plus contracts, which add a specified markup to the vendor’s cost, are particularly common in industries such as construction and manufacturing. 

Business contracts with vendors may be for a fixed or ongoing term, and they often include NDA clauses to prevent either party from sharing proprietary information about the other. Such agreements provide clarity for long-term planning on both sides, but they also may create difficulties if the terms of the agreement no longer work for one or both parties.

3. Employment Contracts

Employment contracts are common in businesses of all sizes and may apply to employee or contractor work arrangements. They define specific job roles, salary and benefits, hourly work expectations, grounds for dismissal, and more. Employment contracts often include NDAs and non-compete clauses based on what’s allowed where the business operates. 

In the U.S., most of these agreements are “at will,” meaning they can be terminated by either party at any time. Nonetheless, the terms of the contract set critical parameters and expectations for work commitments, helping to reduce misunderstandings about duties and performance standards.

4. Licensing Agreements

Licensing agreements allow one party (the licensee) to use the intellectual property, products, or services of another (the licensor). Copyrights, patents, and franchises are common subjects of these types of contracts, which are especially common in the world of corporate law. 

Such arrangements set the length and terms of the licensee’s right to use, distribute, or sell the lessor’s property, as well as payments, royalties, and quality control. They also benefit both parties — allowing licensors to quickly scale their business while licensees get added credibility from working with a known brand. However, licensing products offers limited control, and there is an inherent risk that the licensee will misuse the licensed goods.

5. Professional Service Agreements

Whereas vendor agreements focus on the exchange of goods, professional service agreements detail the pricing and terms around specialized services like consulting, accounting, or legal work. These arrangements are typically more complex, detailing terms such as the scope of work, deliverables, and performance expectations. 

Protecting intellectual property is especially central in professional services agreements, as a company may need to give service providers extensive access to company information. Pricing structures vary, ranging from fixed-price agreements to hourly retainers. 

Contract Negotiation: Can Tech Help Expedite?

Negotiating contracts can be a significant component of day-to-day work in the legal field. Ensuring all the necessary elements are present and fit the specific situation can be a time-consuming task, not to mention the work required for all parties to review the documents. 

Technology can simplify and streamline this work. AI systems can assist with contract review, while simple e-signature tools can expedite the process of sending documents back and forth for signatures. Full-blown contract lifecycle management (CLM) software like Icertis or Agiloft can even help manage contracts from creation to execution. 

A tool like Rev’s VoiceHub can be especially useful during contract negotiations, allowing for automatic transcription of any meetings and discussions. VoiceHub even provides scannable summaries and notes to speed up the process of negotiating and updating contract language. 

Streamline Your Contract Workflows

Contract negotiations, preparation, and review are vital parts of the job for many legal professionals. Understanding the basic elements and most common types is essential, but that knowledge will only take you so far in completing the day-to-day tasks on your list.

Today’s technology and AI-powered tools can make your contract work exponentially more productive. VoiceHub is your ultimate legal assistant, ensuring you don’t miss important details during negotiations and saving you valuable time in reviewing and drafting all types of contracts.

Ready to power up your practice? Learn more about Rev’s solutions for law firms.