15 Types of Contracts Every Business Must Know in 2025

July 17, 2025

6 min read

The right contract can set the foundation for smooth operations, clear expectations, and long-term business success.

From hiring freelancers to securing large vendor agreements, knowing which type of contract to use is key to running a smooth, compliant, and scalable operation.

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Quick Read

Summary generated by AI, reviewed for accuracy.

Choosing the right contract sets the stage for success. Understanding each type helps you build stronger partnerships, avoid risks, and stay in control of every deal. It is a key skill for making confident and legally sound business decisions.

Whether you are looking to streamline your contract lifecycle management processes, reduce legal confusion. This article gives you the clarity and confidence you need to make smarter decisions contract by contract.

As we move into 2025, legal clarity and operational efficiency matter more than ever. This guide unpacks the 15 most important types of contracts that every business whether a startup, growing SME, or established enterprise should know.

Why Understanding Contract Types Is Crucial

No matter what kind of business you run, contracts are part of everyday operations. From hiring employees to working with suppliers or clients, every agreement comes with certain responsibilities and risks. That’s where understanding contract types becomes a game-changer.

Each type of contracts has a different purpose. Some offer fixed prices, while others allow for flexibility. Some protect both sides equally, while others are more one-sided. If you do not know which one to use, you could end up agreeing to terms that do not work in your favour or worse, leave you exposed legally.

By knowing the types of contracts and when to use them, you can

Avoid misunderstandings between you and the other party.

Stay legally protected by using the right terms and conditions.

Save time and money by setting clear expectations from the start.

Build better relationships with clients, vendors, and employees.

Adapt faster to business changes by choosing the most suitable contract type.

Think of contracts as the safety net that keeps your business running smoothly. Understanding the different types of business contracts not only helps you stay in control but also gives you the confidence to handle deals and partnerships the smart way.

15 Different Types of Contracts

1. Sales Contracts

A sales contract is a formal, legally binding agreement between a buyer and a seller that defines the terms of a transaction involving goods or services. It sets clear expectations by including key details such as.

What is being sold (product or service description)

How much is being sold (quantity

For how much (pricing and total value)

When and how the goods/services will be delivered

Example

Company X agrees to sell 500 LED light bulbs to Company Y at $3.00 per unit, totalling $1,500. The contract specifies

Delivery must be completed within 15 business days

Payment must be made via bank transfer within 7 days after delivery

The bulbs must meet the agreed quality standards

This simple agreement ensures that both companies are on the same page avoiding any misunderstandings related to quantity, quality, delivery, or payments.

Why It Matters

Clarifies responsibilities and expectations

Acts as proof if any disagreement happens later.

Helps track delivery and payment timelines

Reduces the risk of non-performance (e.g., goods not delivered, or payments not made)

Before signing a contract, double-check that everything discussed verbally is included in writing especially delivery time, payment method, and return conditions. A good deal is nice, but a written contract saves you when things go wrong.

2. Non-Disclosure Agreement (NDA)

A Non-Disclosure Agreement is a legal deal that protects private information shared between two or more people. It keeps business ideas or secrets safe from others. It is often used in jobs partnerships and talks with vendors or investors.

Let’s assume,

Company X is making a new health tracker. Before sharing details with a freelance developer, they sign an NDA. This stops the developer from sharing any plans or designs.

Why It Matters
NDAs stop others from leaking ideas. This avoids loss of business secrets or legal issues. It builds trust and helps teams work together safely. Always include how long the NDA lasts. Most run for 2 to 5 years.

3. Professional Service Agreement

This contract defines the terms under which a professional or independent contractor provides services to a client. It sets expectations regarding scope of work, timelines, payment, and deliverables. It’s commonly used with consultants, designers, legal experts, and IT professionals.

Example

A freelance graphic designer signs a service agreement with Company Y to design a brand logo and social media templates for $2,000, with a delivery deadline of 20 business days and 50% upfront payment.

Why It Matters

It prevents scope creep, protects both parties legally, and ensures a clear understanding of duties, fees, and deadlines.

Add a “scope of work” section to clarify what is and is not included in the agreement. This avoids unnecessary disputes later.

4. Adhesion Contract

An adhesion contract is a fixed deal offered by one side that has more control or power in the situation. The other side must accept it as it is or walk away. It is common in insurance or software deals. These contracts save time but may not always be fair to both sides.

Example

A customer signs a standard insurance policy with Company Z without negotiating terms. The policy includes pre-set premiums, coverage limits, and cancellation terms.

Why It Matters

Though efficient, adhesion contracts can be one-sided. Courts may invalidate unfair terms if they’re found to be overly harsh or exploitative. Always read the fine print before signing adhesion contracts. Teams may not be able to change the terms, but you can understand your risks.

5. Cost-Plus Contract

A Cost-plus contract reimburses the contractor for project expenses plus an additional fee or percentage for profit. It’s often used in construction or R&D where total costs can’t be precisely estimated upfront.

Example:

Company B hires a contractor to renovate an office. They agree to cover all material and labour costs plus 10% profit margin. If total costs come to $70,000, the contractor receives $77,000.

Why It Matters:

It encourages transparency and flexibility in complex projects, though it requires detailed record-keeping and trust between parties. Set a maximum spending limit (cost cap) in cost-plus contracts to prevent budget overruns.

6. Unit Price Contract

A Unit price contract breaks down a project into measurable units (like per item, per hour, per square foot) and assigns a price per unit. It is often used in building projects and supply deals.

Example:

Company C hires a vendor to handle logistics at $4 per unit moved. If 2,500 units are handled, the total cost would be $10,000.

Why It Matters

It simplifies billing, especially for large or variable-scope projects. Buyers only pay for what is completed.

Ensure unit measurements are defined clearly, and units can lead to billing disputes.

7. Bilateral Contract

A bilateral contract is a legal deal where both sides make promises. Each agrees to do something or give something in return. It is common in business deals. It helps both sides know what to expect and what they must do. Most sales or service deals use this type of contract.

Example

Company D agrees to supply 1,000 reusable water bottles to Company E for $5,000, while Company E promises to pay within 10 days of delivery.

Why It Matters

It creates obligations on both sides, encouraging accountability and legal enforceability. Always state clearly what each party is promising to do and by when it strengthens enforceability.

8. Unilateral Contract

A unilateral contract is a one-sided deal where only one side makes a promise. The other side agrees by doing the task not by making a promise. The deal is only active once the task is finished. These are common for rewards or public offers.

Example

Company F posts an online reward offer: “We will pay $1,000 to anyone who helps us find a security flaw in our system.” A developer finds a flaw and claims the reward.

Why It Matters

It’s useful for incentives and public offers. It becomes binding only when the other party performs the task. Clearly explain what needs to be done this helps avoid confusion and keeps everything smooth for both sides.

9. Supply Chain Contract

A supply chain contract is an agreement that helps manage how goods, materials, and services move between suppliers, manufacturers, and distributors. It helps everyone stay organized and work smoothly together, especially in large production or delivery processes.

Example

Manufacturer A signs a contract with Supplier B to deliver 10,000 units of plastic casing per month for $0.80 per unit over a 12-month period.

Why It Matters

It ensures timely deliveries, reduces risk of shortages, and allows better forecasting and pricing. To make this process better, include contingency plans for supply disruptions (e.g., strikes, raw material shortages, or transport delays).

10. Simple Contract

A supply chain contract is an agreement that helps manage how goods, materials, and services move between suppliers, manufacturers, and distributors. It helps everyone stay organized and work smoothly together, especially in large production or delivery processes.

Example

A small business agrees to purchase 200 custom-printed T-shirts from a local supplier at $8 per shirt. The agreement is made through a simple email exchange. The supplier will deliver the shirts within 10 days, and the business will make the payment within 5 days of receiving the order.

Why It Matters

Even informal agreements can be enforceable in court if they meet basic contract elements. Always document agreements, even if they’re informal. Emails and messages can act as proof if any issues come up later.

11. Employment Contract

An employment contract is a written deal between a company and a worker. It tells the job role pay hours rules and how to leave the job. This helps both sides know their duties and rights from the start.

Example

A software company gives a 6-month internship to a new graduate with a monthly pay of $1200. The deal gives 5 paid leaves work hours from 9 to 5 and allows both sides to end it with a 7-day notice. The intern must follow company rules during the job.

Why It Matters

It gives clear terms protects both sides and helps avoid future problems. A good contract builds trust between the company and the worker.

12. Partnership Agreement

A partnership agreement is a contract between two or more people or businesses who decide to work together and run a business as a team. It clearly explains how they will share responsibilities, profits, and important decisions. This agreement helps build trust and keeps the partnership smooth and fair for everyone involved.

Example

Two individuals start a retail business together. One invests $30,000, and the other invests $20,000. As per their partnership agreement, profits will be shared in a 60:40 ratio, based on their contributions.

Why It Matters

It minimizes conflicts by clearly defining each partner’s role, contribution, decision-making power, and profit-sharing terms. A best practice is to include a dispute resolution process and an exit clause in case the partnership ends, or a partner decides to leave.

13. Confidentiality Agreement

A confidentiality agreement is used to keep private information safe during work between two sides. It stops the sharing of details without permission. This builds trust and keeps business ideas safe. It is often used when sharing plans or data with partners.

Example

A startup shares its new app design with an investor during a meeting. Before the discussion, the investor signs a confidentiality agreement agreeing not to share the design or any related information with anyone else.

Why It Matters

It builds trust, especially during early-stage funding, hiring, or vendor selection, when sensitive ideas are at stake.

List out clearly what is considered “confidential” and what is excluded (like public info or independently developed data).

14. Service Agreement

A Service Agreement lays out the terms under which one party will perform specific services for another. It’s often used in business-to-business and freelance relationships.

Example

A company signs a service agreement with a digital marketing agency to run ad campaigns for $4,000/month, with monthly performance reports and a 3-month minimum term.

Why It Matters

It protects against misunderstandings around deliverables, billing, and timelines especially in ongoing or retainer-based work.

Tips to Choose the Right Contract Type

Choosing the correct contract type is important for setting clear expectations and avoiding misunderstandings. With so many types of contracts available, selecting the right one depends on the nature of the agreement. Here are some useful tips to guide the decision:

1) Understand the Purpose of the Agreement

Start by knowing what types of contracts is meant to cover. If it involves buying or selling goods, a sales contract is a good fit. If the deal involves private business information, then a confidentiality agreement or non-disclosure agreement (NDA) is better.

2) Check the Number of Parties Involved

Some types of contracts are meant for two or more parties working together. A partnership agreement is best when parties are starting a business together. If the agreement is between an employer and a new hire, an employment contract works well.

3) Look at the Type of Promise Being Made

If both parties are agreeing to do something, like one delivers a service and the other pays for it, a bilateral contract is the right choice. If only one party is making a promise and the other accepts by doing a task, a unilateral contract may be more suitable.

4) Consider the Scope of Work

For ongoing or professional services, such as marketing or consulting, a service agreement or professional service contract helps define what work is expected, how much will be paid, and when it will be delivered.

5) Look into Payment Structure

In cases where costs are uncertain or based on quantities, a cost-plus contract or a unit price contract is helpful. These types of contracts offer flexibility while keeping payments clear and fair.

6) Plan for the Long Term

When the agreement involves regular deliveries or long-term cooperation, a supply chain contract keeps everything on track. It helps manage delivery dates, quantities, and pricing over time.

7) Protect Both Sides Clearly

Whichever contract type is chosen; it should clearly protect both sides. A well-written agreement includes steps to handle changes, cancellations, or any unexpected issues.

How CLM 365 Helps Manage All Types of Contracts Effectively?

CLM 365 is a certified solution built on the trusted Microsoft ecosystem. It seamlessly integrates with Microsoft Teams, Outlook, SharePoint, and Power BI, making contract management smooth and familiar for users already working within Microsoft tools. With its dedicated MS Word plugin, users can create, redline, edit, and collaborate on contracts directly within Word, reducing the need to switch between platforms. Designed with advanced automation and AI capabilities, CLM 365 helps manage all types of contracts at ease.

Conclusion

Understanding the different types of contracts is key to building strong and reliable business relationships. Each contract type serves a specific purpose, whether it’s for buying products, offering services, protecting information, or forming partnerships.

Take control of your contract lifecycle start managing smarter with CLM 365 today.