Types of civil contracts and their application
Ecovis | 13 November 2024
With the popularization of freelance jobs, different types of civil contracts have to be signed. You will need to sign a different type of contract when working with an accountant, lawyer, notary or other professional. The specific types of civil contracts cover a different range of obligations, restrictions and services that both parties agree to.
In this article by Ecovis Bulgaria we will introduce you to the most popular civil contracts and their applications. We will synthesize features and uses in business and give advice on when is the best time to incorporate them.
What is a civil contract?
Working with freelancers and freelance professionals is a popular choice when you need to perform certain duties. These can range from website development, accounting and legal services, repairs and more. Since these experts are not your employees, you should enter into a civil contract with them. This is a legal document that is made between two or more natural or legal persons and describes their rights and obligations for the performance of a particular service or activity.
It is important to note that a civil contract does not provide the same social and labour rights as an employment contract. The contracting authority hires the contractor to work on a specific task. The contract describes the conditions, the time for performance, the materials needed and the contractor's compensation. This gives the contracting authority a great deal of flexibility, as it is not bound in the long term.
On the contractor's side, he has to complete the assigned task within the deadline. But this does not mean that there are strict working hours. He is free to manage the project as he wishes, as long as he fulfills the obligations written into the civil contract. For example, if you are contracted for accounting services, you are not familiar with the exact work processes, but you expect the end result. This gives the accountant the freedom to take the necessary time and deliver a good end product.
What types of civil contracts exist?
Just as a civil contract differs from an employment contract, there are different types of civil contracts - each with its own specificities and requirements. What they have in common is that they are all time-bound. Typically, you are paid upon completion of the task, but contractors choose when to work as long as they meet the deadline. No insurance is paid by the contracting company and the freelancer is not entitled to paid annual leave or sick leave at the employer's expense. Now that we've covered the similarities, let's look at the most common types of civil contracts:
Construction contract
If you've been wondering whether to hire a freelancer on employment or civil contract, the latter is a sensible decision. When entering into a contract for workmanship, the freelancer must fulfill the commitments described for the controversial contract. This may include website creation, a marketing campaign, audit services, repair work, or others. He also commits that he will complete the task on time and as required by the obligor.
The Contractor shall use its own materials unless the Contract provides otherwise. Responsibility for performance also falls on him, and there are often liquidated damages for poor work. In these types of civil contracts, the price is predetermined in the contract but is paid after the work is done.
Types of civil contracts – Order contract
These types of civil contracts are drawn up between a trustee and a fiduciary. A promissory note is used when the trustee instructs the fiduciary to enter into a transaction on his or her behalf. A good example from practice, is when a property owner (trustee) instructs a real estate agency (grantor) to lease his property, for a certain commission.
It is important to note that any rights the grantor becomes the owner of from the transaction must be transferred to the trustee. If cash is to be used in the transaction, it must be provided by the trustee.
Copyright Agreement
This type of civil contract protects the rights of artists and their works. They are concluded between the author of the work and the user who wants to use it for commercial purposes. Like other types of civil contracts, there is a term for assigning rights. The maximum allowed by law is ten years, but if not agreed, the term is three.
It is common practice for payment to be set as a percentage of the profit from the use of the work. However, if architectural objects or premises are used, a fee may be payable.
Copyright also affects computer programs and software. If a freelancer creates them in the course of employment, they belong to the employer.
Service contract
Service contracts are not precisely regulated by law. Their parts usually overlap with contracts for order and those for workmanship. What is more unusual is that they are used to acquire benefits, rights or specific activities. A contract for service does not involve a transfer of ownership.
It is important in the performance of the legal relationship that the work, which is within the specified terms, can be quantified or qualitatively measured and subsequently evaluated.
An example of such a contract is a consultancy contract. On the one hand, we have an expert who is expected to perform some legal advice, and on the other hand, we have the person who hired him for a certain fee. It is important to note that in this type of agreement, nowhere is an absolute end result mentioned and no guarantee is given as to the quality of the service performed.
Contract for the management of a commercial company | Types of civil contracts
This type of civil contract is concluded between the owner of an enterprise and an authorised person (procurator). This entitles the procurator to perform all acts and transactions related to the exercise of the commercial activity of the enterprise. But the proxy cannot make corporate changes to the structures of the organization.
The Procurator Fiscal is also entitled to authorise other persons to carry out certain activities, but may not appoint other Procurators Fiscal.
Payment is negotiable, and may be fixed per month, or a percentage of the contracted post. The contract can be fixed term or perpetual, with termination occurring by the owner and recorded in the commercial register.
Specifics - types of civil contracts
A civil contract, whatever its type, differs substantially from an employment contract on several criteria. One is the degree of equality. In an employment contract we have an employer and an employee, and usually the first party is referred to in the written document as the undertaking. Purely legally, the person employed is in the position of a subordinate. In a civil contract, both parties are on equal footing - one is in the role of principal and the other is in the role of contractor.
Another significant difference is that when a person signs a civil agreement, he agrees to the terms of the contracting authority, including insurance. If the person has made a declaration of registration as a self-employed person, then the other party is not obliged to pay social security contributions. In this case, the hired party is obliged to notify what is the insurance contribution they pay. If she is not currently insured, the contracting authority must insure her against the minimum insurable income.
A valuable advantage of working on a civil contract is that it can be in force in combination with an employment contract. The only condition is that the provisions of one agreement do not interfere with the performance of the other legal obligation. It is even possible to conclude several civil contracts at the same time due to their temporary nature.
The options for payment are also radically different from the conditions that are laid down in an employment contract. In the case of a civil contract, the remuneration may be remunerated or gratuitous, this being determined by the contracting authority and the contractor.
That is, it is perfectly legitimate not to be paid for the performance of a service under a civil contract, as long as this is described in the contract and both parties agree. In the case of a contractual relationship, remuneration in the form of a salary is mandatory.
We're sure the information will help you next time you need to sign a civil contract. Learn more valuable tips on our blog here.