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MOUs, bills of sale, promissory notes, employment agreements, loan agreements…

It’s mind-blowing how many different types of contracts there are in the legal world. As a freelancer or business owner, you might be a little intimidated by what they are, what they mean, and when you should or shouldn’t use them. 

Whether you own your own business or have just dipped your toes into the freelancing world, chances are you are seeking a venture where you can be paid. In 2023, there are more than 1.57 billion freelancers worldwide, so you definitely aren’t alone in your quest. 

Types of Contracts in Business

Alt text: Statistics on freelancers in the US Source

In such a competitive environment, ensuring your work is valued and financially secure is crucial. This underscores the importance of contracts in protecting your interests, setting clear expectations, and navigating all the ins and outs of the freelancing world. 

Having good contracts for your business is just as important as having established business insurance. Both of these items will keep your business safe as much as possible as you seek new business opportunities. 

But if you’re feeling a little intimidated by all the different types of contracts but you want to set your business up for success, then this article is for you. 

In this article, we will look into 5 different types of contacts in business, along with some examples of what those look like in action.

Why is Having a Contract so Important?

Before getting into the nitty-gritty of contracts, we need to understand why they are so important. A contract is key to your business’s success because it’s the starting point for any working relationship. It sets the ground rules, defines expectations, and safeguards the interests of both parties involved. It’s not about mistrust but about clarity. 

Types of Contracts in Business

Alt text: Statistics on how often freelancers get paid late Source

A well-drafted contract can prevent misunderstandings and potential headaches. It ensures you get paid for your hard work, spells out the project’s scope, and outlines each party’s responsibilities. 

Nowadays, you don’t want to rely on verbal contracts that could be forgettable and vague. Having a contract is like having a safety net, offering peace of mind to you and your clients.

5 Different Types of Contracts in Business (With Examples)

Employment Agreement

An employment agreement is a legally binding contract between an employer and an employee that outlines the terms and conditions of employment. 

It specifies the rights and responsibilities of both parties and helps prevent disputes or misunderstandings during the employment relationship.

Employment Agreement in Action

Isabella Reyne, a software developer, has been hired by Gree Tech, a technology company, under the terms of an employment agreement. Let’s see how the various elements of the agreement come into play during her employment:

Position and Responsibilities

Isabela’s agreement specifies her role as a Software Developer, and she knows that her primary responsibilities include coding, debugging, maintaining software applications, and collaborating with her project team. 


Isabela is entitled to a monthly salary of $10,000. Gree Tech ensures that this amount is paid to her on the last business day of each month, providing financial security for Isabela.

Work Schedule

Isabela’s regular work hours, from 9:00 AM to 5:00 PM, Monday through Friday, are outlined in her employment agreement. 


The agreement mentions Isabela can participate in the company’s health insurance and retirement plans.


Isabela is aware that her employment is at-will, meaning either party can terminate the relationship with or without cause and with or without notice. 

Governing Law

The agreement specifies that it is governed by the laws of California. In the event of a dispute, this clause helps define the legal framework for resolution.

Promissory Note

A promissory note is a legally binding document that records a promise from one party to pay a specific sum of money to another party at a designated time or on demand. 

This document outlines the terms of the loan, including the principal amount, interest rate (if applicable), repayment schedule, and any other relevant conditions or terms. 

Promissory notes are commonly used in various financial transactions, including personal loans, business transactions, real estate deals, and more. Let’s look into some key things that should be included in every promissory Note and what that would be like in a real contract.

Promissory Note in Action

Jacob, a friend, borrowed $8,000 from Sarah to cover unexpected medical expenses. They want to create a promissory note to formalize the loan agreement and ensure both parties understand the repayment terms.

Here are some key points that should be in the promissory note:

  • Principal amount
  • Interest rate
  • Repayment perms
  • Late Payment
  • Security
  • Maturity date
  • Governing law


An amendment to a contract is a formal and legally binding document used to make changes or additions to an existing contract. 

It allows parties to an existing contract to modify, clarify, or supplement the terms and conditions without creating an entirely new contract. 

Contract amendments are used when the parties want to adjust certain provisions, correct errors, extend deadlines or address new terms that have become necessary.

Amendment in Action

Deborah has a freelance business where she provides email marketing as a service. After beginning the service for Unique Beverages, she realized that she needed to amend her contract. 

Here are some key parts of her amendment in action.

  • Parties
  • Recitals
  • Amendment Details
    • Scope of Services Amendment
    • Additional Term Amendment
    • Compensation Amendment
  • Effective Date
  • Signatures

Purchase Order

A purchase order, or PO, is a formal document issued by a buyer or purchasing department to a seller or supplier in a business or organization. 

It serves as an official request to purchase goods or services and outlines the details of the transaction. Purchase orders are a crucial part of the procurement process. They are used to specify the goods and services, price and terms, and delivery details, among other essential information.

Memorandum of Understanding 

A Memorandum of Understanding, often called an MOU, is a non-binding written document that outlines the preliminary intentions of two or more parties regarding a particular agreement or collaboration. 

MOUs are often used in various contexts, including business, government, non-profit organizations, and international relations, to establish a framework for future negotiations or formal agreements.

MOU in Action

If a legal firm decided that they needed some SEO services to help them increase their Google ranking. 

Here are the main elements that should be in the MOU for a legal firm and SEO Services.


This Memorandum of Understanding is entered into on 10/21/2023 between:


Both The Firm and SEO Services should be listed.


This MOU outlines the preliminary understanding between The Firm and SEO Services regarding the provision of SEO services for the firm’s online presence.

Scope of Services

The firm and SEO Services agree to the following scope of services:

a. SEO Services shall conduct an initial website audit to identify areas for SEO improvement.

b. SEO Services will develop and implement an SEO strategy tailored to the firm’s online presence.

c. SEO Services shall regularly analyze website performance, provide optimization recommendations, and implement on-page and off-page SEO strategies.

d. SEO Services will provide regular reports to the firm detailing SEO performance and any necessary adjustments.


This MOU shall remain in effect from 10/21/2023 and continue for a period of 6 months with the option to renew, subject to the parties’ mutual agreement.


The compensation for SEO Services shall be as per the separate SEO Services Agreement, which will be finalized and attached to this MOU.


Either party may terminate this MOU with written notice of 45 days, with or without cause, provided that any obligations accrued or outstanding as of the termination date shall remain in effect.

Non-Binding Nature

This MOU is non-binding and does not create a legally enforceable contract. It expresses the preliminary understanding and intentions of the parties, which will be formalized in a separate SEO Services Agreement.

Governing Law

This MOU is governed by the laws of the state the firm is located in.


Both parties sign the contract.

Final Thoughts on Contracts and How to Make the Contract Process Simpler

If you’re worried about having to draft a legal document or a contract every time you have a new client, take a deep breath. In 2023, there are plenty of solutions to make the job easier than it used to be. 

Things like using a QR code generator to provide easily accessible information on a flyer to automating how you request a file from a client are all benefits that technology has brought us, so contract automation should not be an exception.

Types of Contracts in Business

Alt text: Zegal’s landing page for contract automation Source 

Contract automation is a revolutionary way for you to set up contracts with your clients. Instead of starting from scratch with every new client, you can tap into a system built just for you to facilitate your business world. 

Check out Zegal’s contract automation to learn how to make matters easier. Zegal streamlines the entire contract lifecycle, giving you more time to focus on what truly matters.

Our platform is designed to ensure efficient, secure, and cost-effective solutions that fit your unique business needs. Try Zegal for free to see what all we can do for you!