We hear the word ‘contract’ a lot in the world of business legals. But what does it actually mean? And more importantly – what does a contract even do?
This article goes through some contract basics, to help you understand how contracts impact your business and how you can use them.
What Is A Contract?
Contracts are legally binding agreements. In the business world, contracts set out the specific terms of agreement between two or more parties. Contracts are the lifeblood of a business, as they give your business certainty and legal recourse, if needed.
A contract can be written, oral, or a bit of both – as long as there is an offer and an acceptance. However, having a well-drafted written contract is the safest way to make sure the details of your deal – with your customers, suppliers, service providers and any partners or affiliates – is clearly documented. This certainty protects you from commercial and legal risks.
When Do I Need A Contract?
Any time your business is entering into a commercial arrangement with another party, whether for the provision of services, the sale of goods or a complex joint venture, it’s a good idea to have a contract in place.
Written, legally binding contracts are the best way to lock in any commercial deals your business enters into. There are all kinds of business agreements you can arrange, which means there are all kinds of contracts.
Common Types Of Contracts:
- Consulting Agreements
- Contractor Agreements
- Software Development Agreements
- Distribution Agreements
- Employment Contracts
- Hire and Rental Agreements
- Intellectual Property Licence Agreements
- Joint Venture Agreements
- Non-Disclosure Agreements
- Partnership Agreements
- Referral Agreements
- Reseller Agreements
- Revenue-Share Agreements
- Sale Agreements
- Service Agreements
- Shareholders Agreements
- Sponsorship Agreements
- Standard Terms & Conditions
- Supply Agreements
How Do I Use It?
Contracts are sometimes written as a formal agreement to be signed by both your business and the other party. This is especially common if you have an ongoing, high value arrangement that you have negotiated.
However, sometimes contracts – especially Standard Terms & Conditions – can be written in a way that it can just be attached to the back of an invoice, form or a proposal, and are drafted so that your customer can accept the terms without need to sign it. When Standard Terms & Conditions are used on an online platform, the customer normally ticks a checkbox to accept the terms – this is called a “clickwrap” contract.
What Does A Contract Actually Do?
When a contract is entered into by two or more parties, it becomes a legally binding agreement. This means that if one party does not stick to their obligations under the contract, you could seek legal recourse.
However, in the practical day-to-day of small business, this is not always commercially viable. For example, it’s unlikely you would immediately sue your customer for making a late payment, without talking to them first. In these situations, a contract acts as a written reminder of the agreement you have made.
In the event that there is any misunderstanding or uncertainty, you can refer back to the contract to clarify what you have agreed on. You can also include clauses in the contract that set out a series of steps if certain situations arise, such as someone making a late payment, not delivering the agreed service, or trying to get out of the contract.
Need Help With A Contract For Your Business?
Putting together a contract can seem like a daunting process, as it’s hard to know what you should put in it and how to word it. Similarly, understanding a contract before you sign it can be confusing if you’re not familiar with the legal terminology used. It’s a good idea to invest in a lawyer to assist you with this process, as this one-off cost can help prevent disputes, misunderstandings and save you from problems and headaches in the long run.
At Sprintlaw, we have a team of experienced lawyers who can assist with your Contract Drafting or Contract Review and other legals your business may need help with. Get in contact with one of our consultants for a no-obligation chat about how we can help.