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What is a Contract

To start off with we need to understand what a contract is. We are not just worried about the definition but we are thinking about what it means to us.

A contract is a legally binding or valid agreement between two parties.

 

The key words here are

  • Legally Binding: It must stand in any court and must be recognized by law
  • Two parties: It must be between parties that are in agreement to make it valid

Why do Businesses need Contracts

A simple thing to ask is why we need contracts. To understand this we look  at a business and here are a few reasons why

  • You are in business with many stakeholders, and in any relationship there is an expectation
  • If you do not deliver it can spell trouble, if they don’t deliver it can also spell trouble.
  • A small business is a legal entity that is operating hence can suffer legal consequences and has a right to certain expectations.

Anything can happen, expectations can be met or not met. When the expectations are not met what then do you do? Another question is how do you get to understand each other in terms of what you expect from each other?

A contract is that document that enables expectations to be written down. Expectations go three ways

  • What I expect
  • What you expect
  • and What we expect when things go wrong and there is no delivery, what would be the remedy

What is an Acceptable contract?

According to http://www.lawhandbook.org.au a contract is acceptable if it has the following;

1.Offer and acceptance;

2.An intention between the parties to create binding relations;

3.Consideration to be paid for the promise made;

4.Legal capacity of the parties to act;

5.Genuine consent of the parties; and

6.Legality of the agreement.

There is no point in having a contract if it is not acceptable. The above 6 things should serve as a reminder of what we need to see in a contract.

A valid agreement ceases to be acceptable if one was never offered and one never accepted. If contracts could just be drawn up by anyone and you are just presented with one without an exchange of agreement then everyone in the world would be in trouble.

Contracts create relationships, and relationships are easier to recognize and honor if there is genuine consent. Why else would one then respect a relationship unless is it is genuine.

Most contracts that end up in trouble is because there is no legal capacity to act , hence they are brushed aside.

5 Good contract Practices

Give yourself a thumbs up if you are keeping to these 5 simple rules

1.Have a good contract: Make sure that your contract is sound and adheres to the principles of a contract

2.Ensure contract is signed by both parties: Ensure that your contracts are singed by both parties so that you lessen legal arguments

3.File your contracts: This is a simple thing but the worst kept discipline by organisations. There have many contracts but no much organisation for those contracts.

4.Ensure you know where your contracts are filed: They might be filed but finding the contract is also just as important as filing it.

5.Ensure your contracts are secure: Contracts can break an organisation when lost or unknown, so don’t lose it, find it and make sure it is secure.

What does a contract look like?

Now we need to look a some of the critical elements of a contract that you should have. We are not looking at them in any order but simply giving you what you must consider

When should your contract change?

It is much better to require for your contract to state that

“Amendments to the contract can only be made in writing with consent from both parties and signed by both parties ”

In other words don’t let the contract be susceptible to be changed over email or text, it will cause you headaches. Let the contract be changed by writing with both parties signing as agreed. If you let it get changed over email then any executive in your company could lead to the terms being changed.

Let there be witnesses

You would want you contract to have witnesses, it not only guards against you being the only person knowing about the contract by in the future you will need those witnesses for assistance. Hint hint hint.

State your dates

When does your contract start and when does it end? When is it being signed? When is the service being expected? When will the service be expected to end?

Who is involved?

Who is involved in the contract? Who are they, how are they related to the parties? This is important, will there be third parties involved in this or is it just people who are coming into the contract?

Confidentiality?

Is there confidentiality involved in the contract? How long will the confidentiality be? Will third parties be allowed to access the information

Prices?

What are the prices involved? Do they involve tax? How much is the tax? What payment arrangement is there? Who will be getting paid? How will they be getting paid? Is there a particular paying bank that is involved?

Breaches?

What happens when a breach occurs? How is a breach recognized? What is a breach? What are the remedies for a breach? Is there money to be involved?

Force Majeure?

Are there any special circumstances that need to be considered for contractual obligations not to be honored? What are those special circumstance?

The above are some of the things you need to worry about when looking at your contract.  Don’t be fooled into thinking they are not important, they could make or break you.