Every business, no matter the size, will at some stage have the need to draw up a contract. Perhaps your company is expanding and you want to take on a new partner, maybe you are tendering for new business or need to enter into a contract with a supplier. Maybe you want to sell your shares in the company or buy shares in another company. An old-fashioned handshake is no substitute for a written agreement and having the right contract drawn up ensures that you get a proper return while avoiding potential legal and other risks.
3 Types of Contracts
A contract is a legally binding agreement between two or more people (natural or juristic) that can be enforced by law. Agreements define the business relationship between the parties and allocate the various benefits and risks in a formal way. Common legal contracts which business owners enter into are:
Constitutional contracts – these regulate the powers and limitations of shareholders and partners.
Relational contracts – these establish and manage the rights and obligations of business parties such as suppliers, customers and employees.
Transactional contracts – these regulate various commercial transactions such as buying or selling of shares, assets or raising debt or equity.
Elements of Valid ContractBusiness contracts are complex and it is therefore not advisable that you try and draw up an important agreement yourself. The services of an experienced attorney can be invaluable to ensure that all your rights and interests are fully protected.
Legally binding contracts must contain four important elements:
A firm offer which is a detailed proposal with certain terms of performance (unilateral or reciprocal) being clearly defined;
An acceptance corresponding exactly to the terms of the offer, made in writing;
The intention to create a legally binding relationship;
A consideration which can take the form of money, items, services, actions or a promise to refrain from certain actions.
Business Contract Tips
Always make sure that you use the correct legal names of all the parties involved in the transaction and that the contract clearly states who is responsible for performing which obligations.
Be sure that every detail is included in the written agreement. If you discuss something verbally but it’s not in the contract, it will be very difficult to enforce.
Include a privacy clause to protect you should the agreement involve the disclosure of important business information that needs to remain confidential.
Clearly specify all payment obligations including amounts and deadlines.
Discuss and include how contractual disputes will be handled.
Decide how the contract can or will be terminated.
Termination of the Contract
Most contracts end when the terms and conditions of the contract have been met. A contract can also legally be terminated due to:
Mutual agreement of both parties, even if the terms of the contract have not been fulfilled.
Unforeseen circumstances in which the contract cannot be fulfilled.
Notice being given to one party that permits the termination of the contract.
A breach of contract in which one party has not complied with the fundamental conditions of the contract. The other party may then decide to terminate the agreement and seek legal compensation.
Good contracts make for good business relationships and Marshall Attorneys are here to help. Have you ever been unfairly dismissed? Read our article addressing essential topics here.