What is the key difference between formal and informal contracts?

The key difference between formal and informal contracts lies in the requirement for structure and specific format in formal contracts. Formal contracts are typically characterized by their adherence to specific legal formats and formalities, which may include written agreements that are signed by the parties involved, sometimes requiring witnesses or notarization. This structured approach is intended to ensure clarity, legal enforceability, and certainty over the terms agreed upon.

Informal contracts, on the other hand, do not have to follow such stringent requirements and can be created verbally or through conduct, although written forms can also exist. The flexibility allowed in informal contracts is beneficial in many everyday transactions where the formality is unnecessary or impractical. However, they may be harder to enforce in legal situations due to the lack of concrete structure and documentation.

Understanding this distinction is crucial for individuals and businesses when entering agreements, as it affects how these contracts are established, interpreted, and enforced.