In Texas, you can technically use either written or oral business contracts. Both of them can be binding.
However, an oral contract is more of a risk. Many small business owners are tempted to enter into handshake deals with other people, especially if they know each other and feel confident that the other party will uphold their end of the deal. But this can lead to significant legal complications that a written business contract would avoid.
Addressing a contract breach
Most importantly, if an oral contract is breached, it can be very hard to prove what terms were agreed to in court. It often becomes a situation where both parties tell a different story about what they believed the terms were. With a written contract, you can simply go back and look at these details.
For instance, perhaps you have been underpaid for your services. You claim that the other party said they would pay you $10,000, but you were only paid $5,000. If you had it in writing that you were owed $10,000 for the job, it is easy to prove that there has been a breach.
But if it was just a handshake deal, the other party may claim that they only agreed to pay $5,000 from the very beginning. Whether they are doing this intentionally to get out of a portion of the payment or if it is a miscommunication issue where they genuinely believed that the cost was much lower, it is still very difficult to prove without a written agreement.
Drafting business contracts
The best way to avoid many of these disputes is simply to draft official business contracts in advance. This is a risk management strategy that can help your business, so be sure you know what legal steps to take.