26 Types of Business Contracts and Using AI to Improve Them
- Last Updated: Jan 30, 2026
- 15 min read
- Sirion
Modern enterprises rely on many different types of business contracts to manage relationships across sales, procurement, partnerships, services, employment, and compliance. As organizations grow in scale and complexity, no single contract format can support every commercial transaction. Each contract type serves a specific purpose—allocating risk, defining obligations, protecting intellectual property, or governing long-term partnerships—making contract diversity essential to effective business operations.
In this guide, we explore 26 of the most commonly used business contract types and explain how they are applied across functions and industries. We also examine how artificial intelligence and modern contract lifecycle management (CLM) tools are improving how these contracts are drafted, reviewed, negotiated, and managed. By combining the right contract structures with AI-driven automation, organizations can improve speed, consistency, compliance, and long-term contract performance across their enterprise.
Common Types of Business Contracts
Enterprises rely on a wide range of contract types to govern pricing models, service delivery, employment relationships, partnerships, and risk allocation. Each contract serves a specific business purpose, helping organizations structure transactions, control costs, protect assets, and manage long-term relationships. The following are some of the most common types of business contracts used across industries, along with their primary use cases.
1. Fixed-Price Contract
A fixed-price contract sets a total cost for the project or service upfront, regardless of actual expenses incurred. This model transfers most cost risk to the provider and is commonly used when scope and requirements are clearly defined, making budgeting and financial forecasting more predictable.
2. Cost-Plus Contract
A cost-plus contract reimburses the provider for actual project costs and adds a predetermined fee or margin. It is often used when project scope is uncertain or evolving, ensuring transparency while allowing flexibility in complex or research-driven engagements.
3. Time and Materials Contract
A time and materials contract bills based on actual labor hours and materials used rather than a fixed total price. This structure is useful when project requirements cannot be fully estimated upfront and ongoing adjustments are expected.
4. Unit Price Contract
A unit price contract sets a fixed rate per unit of work, product, or service delivered. Payments are calculated based on the number of units completed, making this model suitable for construction, manufacturing, and volume-based delivery arrangements.
5. Indemnity Agreement
An indemnity agreement allocates liability between parties by requiring one party to compensate the other for specific losses, damages, or claims. These agreements are commonly used to manage legal and financial exposure in high-risk transactions.
6. Employment Contract
An employment contract defines the terms of the employer-employee relationship, including compensation, duties, confidentiality, and termination rights. It protects both parties by clearly documenting expectations, benefits, and legal obligations.
7. Service Contract / Master Service Agreement (MSA)
An MSA establishes the governing terms for an ongoing services relationship, while individual Statements of Work (SOWs) define specific deliverables, pricing, and timelines. This structure simplifies repeat engagements and ensures consistent contractual governance.
8. Sales Contract / Bill of Sale
A sales contract formalizes the exchange of goods or services for payment by defining pricing, delivery terms, warranties, and payment obligations. It provides legal clarity and protects both buyer and seller in commercial transactions.
9. Non-Disclosure Agreement (NDA)
An NDA protects confidential information shared between parties during business discussions or collaborations. Unilateral NDAs protect one party’s information, while mutual NDAs apply when both parties exchange sensitive data.
10. Joint Venture Agreement
A joint venture agreement defines how two or more parties collaborate on a shared business initiative, including ownership structure, governance, profit-sharing, and exit rights. It is commonly used in strategic partnerships and large infrastructure or technology projects.
11. Independent Contractor Agreement
Independent contractor agreement establishes a non-employment working relationship by defining scope of services, compensation, intellectual property ownership, and tax responsibilities. It helps organizations engage external professionals while avoiding employee classification risks.
12. Lease Contract
A lease contract governs the use of property, equipment, or assets for a specified period in exchange for payment. It defines rent terms, maintenance responsibilities, and usage restrictions for both lessor and lessee.
13. Licensing Agreement
A licensing agreement grants one party the right to use intellectual property, software, trademarks, or technology without transferring ownership. It defines permitted usage, royalties, territorial rights, and compliance obligations.
14. Partnership Agreement
A partnership agreement defines how two or more parties jointly operate a business, including ownership percentages, management roles, profit distribution, and exit rights. It is used to formalize long-term business collaborations and prevent disputes between partners.
15. Supplier / Vendor Agreement
A supplier agreement governs the purchase of goods or services from third-party vendors by defining pricing, delivery terms, quality standards, and performance obligations. It is essential for managing supplier relationships and controlling procurement risk.
16. Distribution Agreement
A distribution agreement authorizes a distributor to sell or market a company’s products within a defined territory. It establishes pricing rules, exclusivity rights, marketing obligations, and termination conditions for channel partnerships.
17. Franchise Agreement
A franchise agreement allows a franchisee to operate under the franchisor’s brand, systems, and trademarks. It defines royalties, operational standards, territory rights, and compliance requirements to protect brand integrity and revenue.
18. Consulting Agreement
A consulting agreement governs professional advisory services by defining scope of work, fees, deliverables, confidentiality, and intellectual property ownership. It is widely used for management consulting, technical advisory, and strategic engagements.
19. Agency Agreement
An agency agreement authorizes one party to act on behalf of another in sales, negotiations, or representation. It defines authority limits, commission structures, fiduciary duties, and termination rights in commercial representation models.
20. Reseller Agreement
A reseller agreement allows a third party to resell a company’s products or services under agreed pricing and branding terms. It is commonly used in software, technology, and channel-driven sales models.
21. Shareholders Agreement
A shareholders agreement governs rights and obligations among company shareholders, including voting rights, dividend policies, transfer restrictions, and exit mechanisms. It protects minority interests and stabilizes corporate governance.
22. Merger and Acquisition Agreement
An M&A agreement formalizes the acquisition or merger of a business through asset or stock purchases. It defines valuation, representations and warranties, closing conditions, indemnities, and post-closing obligations.
23. Data Processing Agreement (DPA)
A data processing agreement governs how personal or regulated data is processed between parties, defining security controls, compliance obligations, and audit rights. It is critical for GDPR, privacy, and regulatory compliance in data-driven operations.
24. Software as a Service (SaaS) Agreement
A SaaS agreement defines the terms for cloud-based software subscriptions, including licensing rights, service levels, data security, uptime commitments, and termination conditions. It is central to modern digital service delivery.
25. Loan Agreement
A loan agreement governs borrowing arrangements by defining principal amount, interest rates, repayment schedules, covenants, and default remedies. It is used for corporate financing, working capital, and long-term funding.
26. Settlement Agreement
A settlement agreement resolves disputes by defining payment terms, releases, confidentiality, and future obligations. It allows parties to avoid litigation and close legal matters in a controlled and enforceable manner.
While these contracts are commonly classified by their business purpose and use case, contracts can also be grouped based on how legal obligations are formed and how performance is exchanged between parties.
Explore the Types of Clauses in a Contract to understand how key provisions allocate rights, obligations, and risk across different agreement structures.
Contract Types by Formation & Exchange
Business contracts can also be categorized based on how obligations are created and how performance is exchanged between the parties. These classifications help determine when a contract becomes binding and how each party’s commitments are formed and enforced.
1. Bilateral Contract
A bilateral contract is formed through mutual promises, where each party commits to performing specific obligations for the other. Most commercial agreements fall into this category, such as sales contracts or service agreements, because both sides exchange enforceable commitments at the time of signing.
2. Unilateral Contract
A unilateral contract is formed when one party makes a promise that becomes binding only after the other party completes a specific act. These contracts are commonly used in reward offers, incentive programs, or performance-based arrangements where acceptance occurs through performance rather than agreement.
3. Express Contract
An express contract contains clearly stated terms, either in written or verbal form, that define the rights and obligations of each party. Because the terms are explicitly communicated, express contracts reduce ambiguity and are easier to enforce in commercial and legal disputes.
4. Implied Contract
An implied contract is inferred from the conduct, actions, or circumstances of the parties rather than from written or spoken terms. These contracts arise when behavior indicates an agreement exists, such as continuing to provide and accept services with an expectation of payment.
Beyond classifying contracts by their business purpose, contracts can also be grouped based on how obligations are formed and exchanged between parties.
Other Key Types of Business Contracts
In addition to structural classifications, organizations rely on specialized contract types to address specific commercial models, legal requirements, and industry-driven needs. These contracts support governance, risk control, intellectual property protection, and long-term service delivery.
1. Simple Contract
A simple contract creates a legally enforceable agreement without requiring special formalities such as notarization or seals. It is commonly used for everyday commercial transactions where standard offer, acceptance, and consideration are sufficient to establish binding obligations.
2. Unconscionable Contract
An unconscionable contract contains terms that are excessively unfair or one-sided, often due to unequal bargaining power or deceptive practices. Courts may refuse to enforce such agreements to protect parties from exploitation and preserve fairness in contractual relationships.
3. Enterprise Service Agreement
An enterprise service agreement standardizes terms for multiple services delivered across an organization or business unit. It provides a unified legal framework for pricing, service levels, compliance, and governance, simplifying contract management in large, multi-service engagements.
4. Memorandum of Understanding (MOU)
A memorandum of understanding documents the mutual intentions of parties planning a future collaboration or transaction. While often non-binding, an MOU outlines roles, objectives, and timelines to align expectations before entering into a formal contract.
5. Vendor Service Agreement
A vendor service agreement defines the scope of services, performance standards, responsibilities, pricing, and termination rights between an organization and its service provider. It is widely used to govern outsourced services and third-party operational relationships.
6. Transfer Agreement
A transfer agreement governs the formal transfer of rights, assets, or contractual obligations from one party to another. It is commonly used in assignments, asset sales, intellectual property transfers, and business reorganizations.
7. Non-Compete Agreement
A non-compete agreement restricts an individual or business from engaging in competitive activities for a defined period and geographic area after an employment or commercial relationship ends. It protects confidential information, customer relationships, and competitive advantage.
8. Employee Invention Assignment and Confidentiality Agreement (EIACA)
An EIACA assigns ownership of employee-created intellectual property to the employer while imposing confidentiality obligations. It is used to protect proprietary innovations, trade secrets, and research developed during the course of employment.
Why We Need Different Types of Business Contracts
Organizations rely on different types of business contracts because each commercial relationship carries unique risks, obligations, and regulatory requirements. Using specialized contract types helps enterprises govern transactions more effectively across functions and industries.
- Risk Mitigation and Legal Protection
Different contracts allocate liability, warranties, indemnities, and termination rights in ways that protect organizations from financial loss, disputes, and regulatory exposure. - Clarifying Roles and Responsibilities
Contract types clearly define the duties, rights, and expectations of each party, reducing ambiguity and preventing operational or legal conflicts during execution. - Tailored Legal Compliance
Certain agreements are designed to meet industry-specific or regulatory requirements, such as employment laws, data protection rules, or sector-specific governance standards. - Efficiency in Specific Scenarios
Specialized contracts streamline recurring transactions by standardizing pricing models, delivery terms, and approval workflows for faster execution. - Managing Different Relationships
Separate contract types support distinct relationships with customers, employees, suppliers, partners, and service providers, ensuring each engagement is governed appropriately.
Each type of contractual agreement is a crucial tool for risk mitigation, legal compliance, and relationship management. By having a spectrum of contracts tailored to their specific needs, a business safeguards its interests and fosters transparent and efficient dealings with clients, employees, and partners.
Understand the Elements of a Contract to ensure agreements are legally valid, enforceable, and structured to clearly define rights and obligations between parties.
How to Select the Right Type of Contract?
Selecting the right type of contract requires assessing your unique needs, risk tolerance, and business relationships.
There are a few steps to follow to do this:
- Assess the scope of the transaction – Use fixed-price contracts for well-defined projects and flexible models such as time and materials when requirements are likely to evolve.
- Evaluate risk allocation – Choose cost-plus contracts when costs are uncertain, unilateral contracts for performance-driven scenarios, and bilateral contracts when both parties make mutual commitments.
- Review legal and regulatory requirements – Certain industries and transactions require specific contract types, such as partnership agreements for joint ventures or licensing agreements for intellectual property protection.
- Align with business objectives – Select contract structures that support pricing models, delivery timelines, and long-term relationship goals.
- Review and adjust regularly – Monitor contract performance and update contract choices as business needs and market conditions change.
With the right contract types selected and aligned to business needs, the final step is ensuring these agreements are managed effectively across their entire lifecycle.
Conclusion: Choosing the Right Contracts and Managing Them Effectively
Understanding the different types of business contracts and selecting the right structure for each transaction is essential to managing risk, ensuring compliance, and supporting long-term business success. From pricing models and service delivery to partnerships and intellectual property, the right contract type provides clarity, protection, and operational alignment across every commercial relationship.
See how the Most Effective AI Contract Management System helps enterprises manage diverse contract types with intelligent automation, risk visibility, and lifecycle-wide governance.
As contract portfolios grow in size and complexity, organizations must go beyond manual processes and spreadsheets. Modern AI-driven contract lifecycle management (CLM) platforms help standardize contract creation, accelerate reviews, monitor obligations, and provide visibility across the entire contract portfolio. By combining the right contract structures with intelligent automation, enterprises can improve speed, control risk, and maximize value from every agreement they manage.
Frequently Asked Questions (FAQs)
How do businesses decide which contract type to use?
Businesses select a contract type based on the scope of work, risk tolerance, pricing model, regulatory requirements, and the nature of the relationship. Factors such as project complexity, cost certainty, performance expectations, and compliance obligations help determine whether a fixed-price, time and materials, licensing, or partnership contract is most appropriate.
Can a contract type change during a project?
Yes, a contract type can change through formal amendments if project scope, risk allocation, or commercial terms evolve. For example, a time and materials contract may be converted to a fixed-price model once requirements stabilize. Any change must be documented through approved contract modifications to remain legally enforceable.
How can AI or software help manage multiple contract types?
AI-driven contract management software helps standardize templates, automate reviews, track obligations, and classify different contract types accurately. These tools improve visibility, reduce negotiation time, ensure compliance, and allow organizations to manage large, diverse contract portfolios efficiently across drafting, execution, and post-signature stages.
What are common mistakes businesses make with contracts?
Common mistakes include using the wrong contract type, failing to define roles clearly, overlooking regulatory requirements, neglecting post-signature obligations, and relying on manual tracking. These errors can lead to disputes, compliance gaps, revenue leakage, and missed renewals, increasing legal and operational risk.
Additional Resources
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