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In legal terms, a contract is any agreement between parties to exchange things of value, such as goods and services for cash. A simple handshake agreement is legally binding, but its terms are not always provable if a dispute arises. However, you don't necessarily need pages upon pages of legalese. A basic contract agreement often works best for a simple business transaction.

Except for a sole proprietorship, enter your business entity's name and not a personal name as a party to the contract. Otherwise, Cohen adds, "you will be personally 'on the hook' and you have lost the limited liability that was likely one of your reasons for forming the entity in the first place. Never blur the distinction between you and the entity you own or represent."

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