The 3 Types of Contracts That Are Indispensable

Key takeaways:

• Select the appropriate contract type by evaluating three key factors: the relationship’s goal (buying, selling, hiring, or sharing information), its complexity and risk level, and the nature of the parties involved.
• Implement a contract lifecycle management platform to centralize contract data and automate workflows, addressing the critical problem of contract information scattered across an average of 24 different systems.
• Standardize contract templates for your most common scenarios including sales agreements, non-disclosure agreements, service agreements, employment contracts, and vendor agreements to enable business teams to execute deals quickly while maintaining legal oversight.
• Automate contract workflows with digital tools to eliminate the 92% of contract management errors caused by human mistakes and prevent the average 8.6% contract value erosion from poor agreement management.

Contracts are legally binding agreements that define the terms, conditions, and obligations between parties in business relationships. Every company relies on contracts to formalize partnerships, sales transactions, employment relationships, and vendor agreements, and poor management of these agreements can lead to significant losses—with the average contract value erosion being 8.6%.

Understanding different types of contracts helps businesses choose the right legal framework for each situation. The right contract type protects your interests, reduces risk, and ensures all parties understand their responsibilities.

Digital contract management transforms how organizations handle these essential agreements. Managing contracts through disparate email threads and shared folders is inefficient; research shows contract data sits in an average of 24 different systems. To solve this, modern teams use contract lifecycle management (CLM) platforms to automate workflows, track obligations, and maintain a searchable repository of all agreements.

What are contracts

Let’s start with the basics. A contract is a legally binding agreement between two or more parties that outlines their obligations to each other. Think of it as the official rulebook for a business relationship—it defines what each person has to do, by when, and what happens if someone doesn’t hold up their end of the bargain.

Without a clear contract, you’re relying on handshakes and memory, which gets messy fast—especially since 92% of contract management errors are human errors, according to The 2025 Legal Operations Field Guide. A good contract protects everyone involved and makes sure business can move forward smoothly. Whether you’re hiring a vendor, closing a sales deal, or bringing on a new employee, the contract is what makes the agreement real.

Legal classifications of contracts

Before we get into the specific types of contracts you use every day, it helps to know how they’re classified from a legal standpoint. You’ll run into these terms, so it’s good to know what they mean.

Express vs implied contracts

An express contract is what you probably think of first: the terms are clearly stated, either in writing or verbally, so everyone knows exactly what they’ve agreed to. Courts have reinforced this principle, refusing to enforce terms sent after an agreement was made because there was no mutual assent to the new conditions. An implied contract, on the other hand, is formed based on the actions and circumstances of the parties involved. For example, when you go to a doctor, it’s implied that you’ll pay for their services—even if you never signed anything saying so.

Bilateral vs unilateral contracts

A bilateral contract is a two-way street—a promise for a promise. Most business contracts are bilateral. For example, you promise to pay a vendor, and they promise to deliver a service. A unilateral contract is a one-way promise. The classic example is a “lost dog” poster: one person promises a reward to anyone who performs the action of finding the dog. The person finding the dog never promised to look—they just did it.

The most common types of business contracts

Now, let’s talk about the contracts that keep your business running. While there are countless variations, most agreements you handle will fall into a few key categories. Getting these right is fundamental to protecting your company and enabling teams like sales, human resources (HR), and procurement to do their jobs effectively.

Sales agreements

Sales agreements are contracts that define the terms for selling products or services to customers. These agreements establish pricing, delivery schedules, payment terms, and performance expectations between your company and buyers.

Digital contracting streamlines sales agreement management in three key ways:

• Sales teams can generate their own contracts within guardrails set by legal, cutting down deal closing time significantly—a vital efficiency given that sales agreements face a 75% negotiation rate, according to The 2025 Contracting Benchmark Report
• Sales leaders get better visibility into deal status and can predict pipeline more accurately, a key benefit cited by 48% of organizations that have invested in their contracting process for better contract data visibility
• Completed sales agreements automatically populate your customer relationship management (CRM) system like Salesforce, creating a single source of truth for key data like renewal dates and payment terms

Non-disclosure agreements (NDAs)

Non-disclosure agreements (NDAs) are contracts that protect confidential information shared between parties. Companies use NDAs during candidate interviews, vendor negotiations, partnership discussions, and sales demos to prevent unauthorized disclosure of sensitive business information.

NDAs safeguard intellectual property, trade secrets, and proprietary processes. Without proper NDAs, companies risk competitors accessing valuable information or former employees sharing confidential data.

Digital contracting makes NDA management efficient and consistent:

• NDAs become quick and easy to execute—averaging just five days to complete, as noted in the report—ensuring intellectual property security without slowing down legal
• Standardized confidentiality, permitted use, and agreement terms ensure employees consistently follow regulatory and company standards
• Completed NDAs are stored in a searchable repository, providing organized access to records and necessary data when you need them

Service agreements

Service agreements are contracts that define the scope, timeline, and deliverables for professional services. These agreements cover everything from consulting work and maintenance contracts to outsourced business functions.

Service agreements protect both parties by establishing clear expectations. They define project scope, payment schedules, intellectual property ownership, and liability limits.

Digital contracting optimizes service agreement management by:

• Enabling quick contractor onboarding, joining the 23% of organizations achieving greater business independence via empowerment and self-service initiatives that guide business users through creating agreements
• Reducing risk through standardized provisions for intellectual property rights, data handling, and liability that ensure regulatory compliance
• Providing contract data insights to monitor performance of key terms like scope of work, billing schedules, and deliverables, helping you maintain stronger contractor relationships

Employment contracts

Employment agreements are another area where standardization pays off. Bringing on a new hire is a big deal, and employment contracts are critical for setting expectations from day one. By standardizing these agreements, you can accelerate your hiring process and make sure every new team member has a consistent and professional onboarding experience.

Imagine being able to:

• Generate offer letters and employment agreements in minutes, not days, so you can secure top talent before a competitor does
• Ensure all contracts automatically include the latest company policies, non-compete clauses, and confidentiality terms without manual review
• Keep a clear, searchable record of every employee agreement, making it easy to manage obligations and confirm compliance down the road

Vendor and procurement contracts

Then there’s the vendor side of the equation. Your relationships with suppliers and vendors are built on contracts. Managing these agreements well means you can reduce costs, mitigate supply chain risks, and hold your partners accountable. When procurement contracts are disorganized, you’re leaving money and opportunities on the table.

Imagine being able to:

• Quickly compare terms across multiple vendor proposals to ensure you’re getting the best deal
• Automate renewal alerts so you never miss a deadline to renegotiate or terminate an agreement
• Track vendor performance against their contractual obligations, giving you the data you need to manage relationships effectively

How to choose the right contract type

With all these options, how do you know which contract to use? It really comes down to the situation. You wouldn’t use a complex master service agreement for a simple one-off project, and an NDA alone isn’t enough for a new sales deal.

Here’s a simple way to think about it:

• What’s the goal? Are you selling something, buying something, hiring someone, or just sharing confidential information? The purpose of the relationship is your first clue.
• How complex is it? A multi-year partnership with a key supplier needs a more detailed contract than a freelance project. Match the contract’s complexity to the relationship’s risk and value.
• Who is involved? The type of contract will also depend on whether you’re dealing with a customer, a vendor, an employee, or a partner.

The best approach is to have standardized templates for your most common scenarios. That way, your business teams can move quickly while legal still has control over the core terms—a critical step, especially since over half of organizations report they don’t plan any contract simplification initiatives.

Next steps

Modern contract management transforms how legal teams handle agreements across all business functions. Digital contracting platforms eliminate tedious manual tasks, ensure agreements meet company standards, and provide a clear view of how your contracts are performing.

Ready to see how contract automation can streamline your workflows? Request a demo today to explore how Ironclad helps legal teams manage sales agreements, NDAs, and service contracts more efficiently. You can also read our implementation guidelines to assess your organization’s readiness for a contract lifecycle management system.

Frequently asked questions about types of contracts

What are the four main types of contracts?

While there are many ways to categorize them, business contracts often fall into four functional groups: sales agreements (for selling goods or services), service agreements (for procuring services), employment agreements (for hiring), and non-disclosure agreements (for protecting information).

What’s the difference between express and implied contracts?

An express contract has its terms explicitly stated, either in writing or verbally. An implied contract is created by the actions and conduct of the parties. For instance, ordering food at a restaurant creates an implied contract that you will pay for the meal.

What are the four C’s of contracts?

The “four C’s” are a good rule of thumb for a solid contract: Clarity (the terms are easy to understand), Certainty (the language is precise), Consensus (all parties agree), and Consciousness (all parties are aware they are entering a binding agreement).

Which contracts does every business need?

Nearly every business needs non-disclosure agreements (NDAs) to protect confidential information, service agreements for vendors or contractors, and sales agreements if they sell products or services. If you have employees, you’ll also need employment contracts.

How do I know if I’m using the right contract type?

Think about the purpose of the relationship. Are you buying, selling, hiring, or protecting information? The goal will guide you to the right type of agreement. For common situations, it’s best to work with your legal team to create standardized templates.

---

Ironclad is not a law firm, and this post does not constitute or contain legal advice. To evaluate the accuracy, sufficiency, or reliability of the ideas and guidance reflected here, or the applicability of these materials to your business, you should consult with a licensed attorney. Use of and access to any of the resources contained within Ironclad’s site do not create an attorney-client relationship between the user and Ironclad.