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When it comes to doing business in Australia, entering into clear and reliable agreements is a key foundation for your success. Whether you’re working with clients, teaming up with a supplier, or bringing a new co-founder on board, a well-structured contract is what sets expectations and reduces risk for everyone involved.
But what exactly counts as a “contractual agreement,” and what are the different ways you can formalise an agreement in a business context? Understanding the various methods of contractual agreements ensures that your deals are not only legally sound, but also best suited to your business goals and working style.
In this guide, we’ll unpack the main methods of contractual agreement used by businesses across Australia, explain the types of contract you might encounter, and help you decide which options are right for your contracted business arrangements. If you’re unsure about which approach to take, don’t stress – with the right information and a supportive team behind you, agreeing on terms can be straightforward.
What Is a Contractual Agreement?
Before jumping into the different methods and types, let’s briefly define what a contractual agreement actually is. In simple terms, a contract is any legally binding agreement between two or more parties outlining their rights, responsibilities, and expectations. This could relate to supplying goods, providing services, selling a business, joining a partnership, and more.
For a contract to be legally enforceable in Australia, it generally needs these elements:
- Offer: One party proposes terms.
- Acceptance: The other party agrees to those terms.
- Consideration: Something of value must be exchanged, such as payment or services.
- Intention: Both parties must intend for the agreement to be legally binding.
- Certainty: The terms must be clear enough that a court can enforce them if necessary.
Many business owners assume this only applies to written contracts, but as we’ll see, there are actually several methods of contractual agreement available in practice.
What Are the Main Methods of Contractual Agreements?
There are a few primary ways that contracts can be formed. Each method has its own pros, cons, and ideal use cases, so let’s break them down:
1. Written Contracts
This is by far the most common – and most secure – way to formalise business relationships in Australia. A written contract clearly sets out all key terms, and both parties sign (physically or via electronic signature) to confirm acceptance.
Examples include:
- Service agreements
- Employment contracts
- Shareholders agreements
- Commercial leases
- Non-disclosure agreements (NDAs)
Written contracts are best for arrangements where:
– There’s a significant exchange of value
– You want detailed clarity on expectations and how disputes will be managed
– You’re dealing with a new party or a complex project
– Legally, the arrangement requires it (for example, when selling a business, franchising, or long-term leasing)
2. Verbal Contracts
Verbal (or “oral”) contracts are agreements that are spoken, not written. Here, parties reach an understanding and agree on key points by word of mouth. In Australia, verbal contracts can be legally binding, as long as the usual elements of contract formation (offer, acceptance, consideration, intention, and certainty) are met.
However, verbal contracts carry significant risks – including misunderstandings, disputes about what was actually agreed, and difficulties proving the existence or terms of the agreement if a problem arises. They are not suitable for high-stakes, long-term, or complex business deals. As a practical tip, if you do make a verbal agreement, follow up with an email summary (“Just to recap, here’s what we agreed on our call…”) – this creates a basic “paper trail” for evidence later.
For more on when verbal promises can become legally binding, check out our article here.
3. Implied Contracts
Sometimes, a contract comes into existence not because the parties actually discussed and agreed on all terms, but because their actions imply an agreement exists. Australian law recognises “implied contracts,” where the conduct of the parties indicates a mutual understanding, even if nothing was written or clearly said.
Examples of implied contracts might include:
- A customer sits in a cafe and orders coffee. By consuming the drink, both sides have entered into a contract (the customer pays, the cafe provides the drink).
- A business regularly supplies goods to another, and payment is made in a consistent pattern – even if there is no explicit document.
While implied contracts do hold some legal weight, it’s always advisable to make your important business agreements explicit and in writing to avoid confusion and disputes later on.
4. Clickwrap and Online Agreements
With the rise of ecommerce and software services, many contractual agreements are now made online using “clickwrap” methods. This is when a user agrees to terms by clicking “I accept” or ticking a box on a website or app, rather than signing a physical document.
Clickwrap agreements are common for:
- Online shop website terms and conditions
- Mobile app terms of use
- SaaS or software subscription agreements
- Online marketplaces and platforms
Clickwrap agreements can be enforceable, provided they are presented clearly and users must take an affirmative action (tick, click, sign) to indicate acceptance. Make sure any online terms are clearly drafted, explain user rights and obligations, and properly address consumer rights under Australian law. Need more detail? See our guide to online contract law.
What Are the Main Types of Contracts?
Beyond the method of agreement (written, oral, implied, online), contracts can also be classified by their purpose and content. Here are some of the most common types of contract used in contracted business arrangements in Australia:
- Service Agreements: Used to formalise the delivery of services between a provider and a client. Clearly sets out the scope of work, timing, price, payment terms, and dispute resolution procedures. Learn more about service agreements.
- Goods/Products Sale Agreements: Outline the terms for the sale and purchase of physical goods, including delivery, risk, title, pricing, and warranty details. Often called “terms of trade” or “sales terms” when used by retailers or wholesalers.
- Employment Contracts: Detail the terms of employment (role, pay, duties, termination, etc.) for staff. These are required under employment law and should reflect National Employment Standards (NES).
- Contractor Agreements: Used if you’re engaging an independent contractor, not an employee. These contracts clarify deliverables, payment, intellectual property, and contractor status. For more on contractors vs employees, see our guide.
- Shareholders Agreements: Required if your business has multiple owners/shareholders. They set dispute procedures, share transfers, company decision-making and more. Read more about shareholders agreements.
- Lease Agreements: Cover the rental of property (commercial offices, retail premises, warehouses) to clearly define rights, obligations, and rent between landlord and tenant.
- Franchise Agreements: Required if you buy into or run a franchise. These contracts are highly regulated and must meet the Franchising Code of Conduct. See our guide for franchisees.
- Confidentiality (NDA) and Non-Compete Agreements: Used to protect business secrets and restrict certain competitive activities after a relationship ends.
Each type of contract can be established through the methods discussed above, but written form is almost always preferred for clarity, proof, and enforceability – especially for key business relationships.
How Do I Choose the Right Method and Type of Contract?
The best method of contractual agreement depends on your business’s risk profile, needs, and the nature of the relationship. Here are some factors to consider:
- Value and Importance: The more valuable or long-term the arrangement, the more important it is to have a clear, written contract.
- Complexity: If there are lots of moving parts (timing, delivery, payment, legal compliance), written agreements are best to spell out the details.
- Legal Requirements: Some arrangements must be in writing; for example, property transfers, certain franchise agreements, and employment terms under awards. Check industry-specific laws if you’re unsure.
- Proof and Enforceability: If a problem occurs, you need to prove your agreement. Relying solely on verbal or implied contracts can be risky unless you’re dealing with simple, low-value deals or long-standing partners you completely trust.
- Digital Operations: If your contracted business is online, clickwrap or online agreements may suit your workflow. Just ensure your terms are robust and reflect both your business processes and your customers’ rights.
Remember, you’re not locked into a single method for every business arrangement – you can use a different approach depending on the context. For your most critical relationships, having tailored, clearly written contracts is always worth the upfront effort – and is a key part of future-proofing your business.
Legal Requirements and Compliance in Contractual Agreements
Even if you choose the right contract method, you also need to make sure your agreements actually comply with Australian law. Here are a few legal considerations to keep in mind:
- Australian Consumer Law (ACL): If you sell products or services to individual consumers, your contracts must meet the ACL, including rules on fair terms, cooling-off periods, and automatic guarantees. Read more about ACL compliance.
- Employment Law: Written employment contracts must comply with the minimum standards outlined in the National Employment Standards (NES) and any Modern Award or Enterprise Agreement that may apply.
- Privacy Law: If your contract involves collecting or handling customers’ personal information, you must inform them and may need a compliant Privacy Policy.
- Intellectual Property (IP): Clearly state who owns any new IP created under the contract – don’t assume it’s automatically yours without an agreement. For more detail, see our IP overview here.
- Unfair Contract Terms: The law now prevents “unfair terms” in contracts with small businesses and consumers – meaning you can’t have terms that are one-sided, hidden, or excessively harsh. See what’s changed in unfair contract terms law.
Not sure if your agreements are compliant? It may be time to have a legal health check for your business – this can identify risks and ensure your contracts tick all the right boxes.
What Legal Documents Should My Business Have?
Every contracted business will have unique needs, but here’s a quick checklist of key legal documents most businesses should consider:
- Service Agreement or Client Contract: Outlines what you’ll deliver and how you’ll be paid.
- Terms and Conditions (Website/App): Sets rules for users, payment, refunds, and more.
- Privacy Policy: Required by law if you collect personal information.
- Employment Contract or Contractor Agreement: Sets the relationship with each staff member or supplier.
- Non-Disclosure Agreement (NDA): Protects your confidential business information.
- Shareholders/Partnership Agreement: Essential if you have more than one business owner.
- Supplier/Distribution Agreement: If you source goods from others, these contracts set delivery, pricing, and liability rules.
- Lease or Licence Agreement: Covers the premises or equipment you use for your business.
For a more detailed breakdown, see our guide on essential legal documents for business.
Can I Use Templates or Should My Contracts Be Customised?
There are plenty of contract templates online, and for simple, low-value arrangements, these can provide a useful starting point. However, Australian law and your industry-specific requirements change often – and generic templates may not protect you if something goes wrong.
Critical contracts (dealing with major clients, key suppliers, multi-year arrangements, or high-value deals) should always be tailored by an experienced business lawyer. Having the right agreement in place from the start saves you money, stress, and disputes further down the line.
Key Takeaways
- There are several methods of contractual agreement in Australia: written, verbal, implied, and online (clickwrap) agreements – each with pros and cons.
- Choosing the right method of contractual agreement depends on the value, complexity, and risk of each business arrangement.
- Written contracts are almost always preferred for clarity, proof, and legal protection for your contracted business relationships.
- Your contracts should be compliant with Australian regulations – such as consumer law, employment law, and unfair contract term rules – to avoid costly legal issues.
- Custom agreements, drafted or reviewed by a qualified business lawyer, are the best way to ensure you’re fully protected and ready for growth.
- Having the right legal documents – service agreements, employment contracts, privacy policies, and more – empowers you to run your business smoothly and confidently.
If you would like a consultation on the methods of contractual agreements or need help preparing or reviewing contracts for your business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat. We’re here to help you grow your business with confidence!
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