Often many a time entrepreneurs come up with brilliant ideas that could literary transform their livelihoods as well as add value to their respective communities and the country as a whole. However lack of written business contracts has seen many an entrepreneur losing money as well as potential business. Lack of written contracts has also seen a lot of entrepreneurs wasting time and money staving off unnecessary lawsuits.
What you need to know about business contracts
- What is a business contract?
A business contract states the terms and conditions of any business transaction, including product sales and delivery of services. This helps the parties involved to avoid any type of misunderstanding that may arise in the absence of a written contract.
If you are collaborating with a friend on your new business, then it is all the more important to create a written contract. This will help you avoid any misunderstandings and consequently will save you from the rifts that might end your friendship.
- How about an oral agreement?
If you have an oral agreement, you might forget some points that you have agreed on verbally with the passage of time. But with a written agreement, all the terms and conditions are crystal clear at any point in time. Further, you can always amend the agreement with the consent of both the parties.
Many people are unrealistic when it comes to creating contracts. You should not take it for granted that the threads of your relationship (business, personal or otherwise) may not be strong enough to face crises. The fact is that disagreements can and do arise, especially between friends and family members and especially when a close personal relationship is intertwined with a business one.
When you get into a verbal contract, you may not mention things that seem to be obvious. It is these issues that usually create trouble in the future when you want to enforce any agreements that have been made. Conversely, when you get into a written contract, you and all the parties involved are cautious enough to include all the details, making disagreements later on far less likely.
Written contracts are also much easier to enforce should you end up in court.
- Essential elements of a Contract
A contract consists of an offer and
acceptance and sometimes, a counteroffer. The offer constitutes a statement
that specifies that a person or business is ready to enter into an agreement on
some specific terms and conditions. The acceptance comes from the person who
accepts the offer on the basis of those terms and
conditions.
A person might not agree to the specified terms and might present a ‘counteroffer’ within the clauses. When the person who made the offer, accepts the counteroffer only then is the contract is formed. You should also check whether the person who is signing the contract is authorized to do so or not.
Also, both the parties that are getting into the contract should be mentally competent. In other words none of them should be a minor. The agreement should have a lawful purpose.
The essential elements of a business agreement are:
- The parties to the agreement
In other words, the contract lists your business name and the name of the other party, whether it is a customer or a vendor.
- What each party is going to gain from the agreement
This is referred to in legal vocabulary as “consideration.”
- The main terms of the contract
For example, what each party is promising to do. Obviously, it is extremely important that this part of the contract be very specific and include such things as the work to be performed, the price to be paid for the work, how and when payment will be made, when the work will be completed, how long the contract will be in effect and whether either party is “warranting” anything.
- Additional terms
These should probably include conditions under which either party can terminate the contract, whether either party can transfer or assign the contract to another person or company, whether disputes arising from the contract may be arbitrated or mediated, payment of Lawyer’s fees if one party breaches the contract, an address where legal notices can be sent to each party, and which country law applies if questions about the contract arise.
- Execution
Be sure both parties sign the contract and that the person signing (if he or she is representing a company) has the authority to sign.
- Delivery
Make sure each party receives a copy of the final signed agreement.
- Date
This is the date the contract is signed.
- Why contracts for your Small Business
All entrepreneurs who had bigger visions such as Strive Masiyiwa formalized their business at an early stage. Entrepreneurs need to have a ‘bigger picture mentality’ in order to reap rewards later on. As a business owner, it is very important that you get into the habit of always using written contracts, especially when it comes to performing services for clients. This is because you probably do not have deep pockets should you be sued. You also probably do not have much time to expend on litigation as you should be spending a lot of time setting up your business and building your brand.
If you use written contracts, it is also far less likely that you will end up in court. Your clients will be much more inclined to work with you to find a solution and work things out. Also business contracts do and should contain dispute resolution clauses which aim to make litigation or arbitration the last resort in solving problems.
Conclusion
Business contracts are an important part of doing business, but they must be carefully worded to ensure everything is exactly how you want it and the other party agrees to, before you both sign on the dotted line. That way you avoid getting into trouble and business can be done quickly and efficiently as per the contract with everyone knowing exactly what is expected.
The fine details in verbal agreements can easily be forgotten over time and then there will be disagreement and discord with no one knowing what they have to do. It is important to read all the fine print in every business contract and make sure you understand it before you sign on the dotted line. Written contracts are for your protection. Use them diligently, and your customers will see that you are serious about doing business the right way.
About Author
Namatirai Muzarakuza is a holder of a Bachelor of Laws (LLB) from the University of Zimbabwe and a Post- Grad in Corporate Governance and Strategic Leadership. She has over 8 years’ experience in private practice, banking and finance as well as corporate law. Her contact details are namaruzvidzo@gmail.com
