For a company doing business in the US, a contract is the written security of its relationships; a well-drafted contract prevents a dispute from the start, while a poor or incomplete one can put the entire business at risk. For foreign entrepreneurs, US contract law differs from practice in their home country on a few important points: validity requirements, which state's law applies, and how disputes are resolved. This guide covers commercial contract types, validity rules, and the logic of governing law and arbitration. It is general information, not legal advice.
What Is a Business Contract and When Is It Valid?
Under US law, a valid contract has three core elements: offer, acceptance, and consideration (each party giving and receiving something of value). When these elements are complete, the parties are legally bound by the contract. But validity alone is not enough; for a contract to be enforceable, it must be clear, definite, and provable. Although oral agreements are valid in some cases, they are very hard to prove in a dispute; this is why a written contract is essential in commercial relationships.
Contract Types a Foreign Entrepreneur Needs
The contracts a business needs vary by its operations; for most foreign entrepreneurs starting a business in the US, the core set includes:
- Operating Agreement: In a multi-member LLC, the most critical document setting ownership percentages, profit-loss distribution, management authority, and member-exit rules.
- Customer and supplier contracts: Define the commercial relationship with payment terms, delivery, limitation of liability, and termination clauses.
- Non-disclosure agreement (NDA): Protects trade secrets, the customer list, and the business model.
- Service and employment contracts: Govern employee and independent contractor relationships, intellectual property, and non-compete clauses.
Most of these contracts should be prepared at the same time as company formation. If you are forming your company from scratch, we cover the process in our guide to starting a company in the USA.
Governing Law: Which State's Law Applies?
In the US, contract law is largely regulated at the state level, and states interpret the rules differently. This is why every contract should have a governing law clause; it determines which state's law a contract will be interpreted under in a dispute. Without the clause, the parties can face the rules of an unexpected state. Businesses usually choose the law of the state where they are headquartered; states with developed corporate law, such as Delaware, are also frequently chosen. You can review the federal framework of contract law in the Cornell Law School legal dictionary.
Dispute Resolution: Court or Arbitration?
A contract dispute can be resolved two ways: litigation (court) or arbitration. Arbitration is generally faster, confidential, and more practical in cross-border relationships. Under the Federal Arbitration Act, a written arbitration clause placed in the contract is binding in the US, and courts enforce it. The critical point for foreign entrepreneurs: because Turkey is also a party to the New York Convention, an arbitral award rendered in the US can be recognized and enforced in Turkey. This means that if you fall into a dispute with a partner in the US, you can enforce the award against assets in Turkey. The arbitration clause should clearly specify the applicable law, the seat of arbitration, and the institution.
Written Contracts and the Statute of Frauds
In the US, certain contracts must be in writing by law; this rule is known as the "statute of frauds." Its scope varies by state but typically includes: contracts to be performed over more than one year, the sale or transfer of real estate, sales of goods above a certain amount (generally under the Uniform Commercial Code), and guaranteeing another's debt. If an agreement in this category is not written and signed, it may not be enforceable in court. The practical rule is simple: document every commercially significant agreement in writing, signed, and clear.
Cross-Border Contracts Between Turkey and the US
Additional layers come into play for entrepreneurs doing business between Turkey and the US. The language of the contract matters: in the US the English text is treated as binding, so a Turkish translation should be kept for information only, and which text controls should be stated in the contract. Payment and currency terms, tax and transfer rules should be written clearly. Most importantly, which law and which forum will resolve a dispute between the two countries should be decided from the start. You can see how the contract structure is set up when acquiring a business in our guide to buying a business in the USA, and for a process integrated with an investment visa, our E-2 investor visa service.
Work with Yellow Law Group
The cost of a contract dispute in the US far exceeds the cost of having the contract drafted correctly from the start; templates are often written under the wrong state's law and lack critical protective clauses.
Yellow Law Group, from its headquarters in Plano (Texas) and offices in Chicago (Illinois), Irvine (California), Alpharetta (Georgia), and Fairfield (New Jersey), structures your contracts around your interests. To have your contracts drafted or reviewed, you can work with our business contract attorney team, review our attorneys on our team page, and schedule a free initial consultation through our contact page.
