According to the Nepalese Supreme Court, any deed where both parties agreed for a commission or an omission of an act for a certain consideration of something is called a contract.

The past few years have seen an exponential rise in economic activities in Nepal. Today, there are many organizations, businesses, individuals, and even government agencies that have countless active agreements between them. An agreement, like a promise, is trusted upon and when broken. So the importance of contracts cannot be overemphasized for every business or transaction.

Contracts are legal written forms of agreement between two or more parties. According to the Nepalese Supreme Court, any deed where both parties agreed for a commission or an omission of an act for a certain consideration of something is called a contract. 

Any verbal or informal agreement can be easily breached thus putting businesses under constant threat because it is not recorded, can fade with memory, can be manipulated, or does not fulfill legal requirements to stand legally. A well-written contract includes, but is not limited to, the duration of agreement, terms of performance and deliverables, payments, terms for resolution of disputes, confidentiality, terms of failure to meet the obligations and fulfills the requirements of law.

Many companies, from big to small, established to start-ups, local to international have realized the importance of contracts in performing various types of deals in their business to protect the interest of all the involved parties. A contract is like a guarantee. For example, a contract guarantees the delivery of a product by party A to party B and also guarantees payment by party B to party A. Another example, it guarantees performance by an employee to the employer and also guarantees wages by the employer to the employee. A contract is discussed and negotiated by both the parties, for the best of their respective interests, to be agreed upon by both of them.

Why are contracts important in businesses?
There are many benefits of securing your business by a contract. We have listed some of the advantages of signing a contract but it is not limited to these.

1. Contract is a binding agreement.
A contract clearly states the rights and obligations of all the parties involved in a given agreement. It is a record of commitment by both parties and thus is a legal instrument that holds them compliant and accountable.

2. Contract prevents and settles conflicts.

A good contract includes most or all possible conditions that can be encountered in business dealing. It sets out the manner of working between parties to prevent conflicts in the future and also includes ways to settle the conflicts should there arise any. A business contract provides protection and decreases risk to both parties.

3. Contracts increase efficiency.

Since contracts ensure adherence to the commitments made and lay details of any agreement it helps businesses run smoothly and efficiently. It protects anyone from false commitments by other businesses, employees or employers.

4. Contracts help maintain relationships.

Contracts are signed after equal and fair negotiation from both parties for the best of their interests and ideally contain details of the agreement and avoid any misunderstanding. It helps realize the expectation and commitment of both parties. Thus contracts help build and sustain business relations.

5. Contract increases a company’s value

A company, organization or business that pays attention to details of agreements and transactions between itself and other businesses or its own employees sends a message that they care about their relationship and commitments and want smooth operation of their business. It expresses a company’s brand and value.

In Nepal, the Muluki Ain or the Civil Code 2074 (2017) that came to effect from 2075 Bhadra 1st has provisions related to contracts. Contracts should be formulated in accordance with the Civil Code as well as different existing laws related to business, companies and commerce.

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