What is meant by business contract system

A business contract system is a collection of contracts between the owners of the various factors of production of a business and between them and their customers, which may or may not be signed in writing.

1. A business contract system may or may not be entered into in writing. In the marketplace, there is both a supply side and a demand side for products, and there is both a supply side and a demand side for factors of production. However, a particular final product is a long process from the purchase of raw materials to the sale of the final product to the consumer. In a market, this process may require a series of transactions. However, transactions in the market are not without cost. The most obvious cost is the cost of time. An increase in trade links inevitably increases the time, and hence the cost, of the process of producing a product, effectively wasting valuable resources. Thus, the emergence of the organizational form of the firm as a tool for conserving resources and promoting their more efficient circulation is a useful complement to the function of the market.

2. The enterprise contract system is a special contract between human capital and non-human capital. He points out that human capital belongs inseparably to its carrier, which makes the enterprise contract incomplete. Thus, the special character of the enterprise contract is that it contains human capital. But in the modern enterprise, we see the capital hires labor, seldom see capital owners and human capital owners (especially ordinary employees) equal to the signing of the "contract", that is to say, even in the conditions of perfect competition, human capital owners and non-human capital owners of power is asymmetric. It is widely recognized in the theoretical community that Zhou Qiren's view is profound, and that he explains the specific meaning of the corporate contract.

3. In the case of capital employing labor, first of all, the existence of the enterprise contract system is based on the contract between different non-human capital owners. For an individual firm, it is the source of the relevant capital element, i.e., the firm's capital, invested by the owners of some elements of monetary capital under a contract for the transaction of the right to use the elements.

Contractual theory provides a more comprehensive explanation of the nature of the firm. It sees the modern enterprise as a vehicle for increasingly complex economic relations, a collection of contracts with legal personality in which various factors are united for their own purposes. Since enterprises replace product markets with factor markets, and the role of the price mechanism in factor markets is much smaller than that of product markets, enterprises mainly use hierarchical relationships or hierarchies to replace market exchanges. The hierarchical relationship within the enterprise is an extension of the principal-agent relationship. The transfer of such contracts and the right to use the relevant elements constitute the factor market.