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Contingent Contract Example

A Contingent Contract is a very flexible type of contract, especially for a business that doesn’t own or operate its own building. As the name suggests, this type of agreement provides a business with a specified amount of money on a certain date but does not require it to use any money until the agreed upon amount has been collected. For example, when a company hires a new employee and agrees to pay the employee over the course of several months, the company can make this arrangement, without having to hold any money until the agreed upon amount has been collected.

A contingent contract has some important advantages for a company. First, it offers the flexibility of being able to get paid for an agreed upon amount of money, even if it was not originally required. This means that a company can get money in the bank and have it available when the agreed upon amount is due.

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A second benefit of a contingent contract is the tax benefits that it offers. Because the business can get paid more money as agreed upon, it generally does not have to pay any tax on this money until the agreed upon amount is collected. This means that companies that have a high gross profit may not be paying any taxes on the money they receive. In this case, the money will be subject to tax, which can offset some of the savings that a company receives from making this arrangement.

A good example of a contingent contract would be that of an insurance company. If an employee were to file a claim with the company and the insurance policy was lost, the insurance company could still receive a payment from the policy company. Even though the policy company received no money up front, it would still owe the insurance company money on the premium payment, regardless of whether or not it actually pays out on the policy.

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A third advantage of a contingent contract is that it allows a company to avoid paying taxes on the money it receives during the term of the contract. By requiring the company to pay in advance, the company avoids paying taxes on the funds it receives, which can help offset the cost of the contract in the long run. Although the IRS views these types of arrangements as ideal, they are still subject to a tax assessment against them before they become effective, so the arrangement might still be evaluated if the company fails to meet the requirements needed for tax breaks.

A fourth benefit of a contingency contract is the flexibility it provides for a company. While most contracts only cover the initial payment, some companies can also agree to pay later on in the agreement if a need arises. However, this requires both parties to agree that the payment will be made at a particular time and at a particular amount of money.

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A fifth benefit of a contingency contract is that it can be used as an exit strategy, if a business should become unprofitable. When a company agrees to make a contingent contract, it can ensure that its assets will be sold to pay off some of the debt owed to it before the end of the agreement. A company can also use the same method to pay off debt if it should become bankrupt.

A contingent contract can also be used as an agreement between two companies, if the business owner is unsure how much the company will earn in a certain period of time. By providing a specified amount of money to the business for an agreed upon amount of time, the business owner can get the money that it needs to continue operating without having to spend any money.

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