A contract is simply an agreement which binds the parties to it, which the law will enforce if one party doesn’t adhere to its conditions. Agreements come in many shapes and sizes, and you probably enter into more of them than you realise. Every time you engage a service provider, buy from a shop or order online and click to accept the terms of conditions, you’ll have entered into a legally binding agreement.
Contracts can be formal or informal. In many cases, they don’t need to be a signed legal document, or even communicated officially in writing. They can be verbal or contained in an exchange of emails, texts, or other communication. However, under English law some types of agreements, such as employment contracts, guarantees and contracts for the sale of land, need to be in writing.
We asked practising English lawyer Jonathan Dawe about what circumstances would you need a written contract for business.
Why do you need a written business contract?
The main reason for a written business contract is to demonstrate that all parties have the same understanding of the agreement and what each party is expected to do. That way, if one party breaks the agreement, a legal claim is easier to achieve. If an agreement isn’t in writing, parties may argue they each understood the terms differently and it will be difficult to prove otherwise. By this point, the parties are likely to be in dispute making a swift resolution harder to achieve. A well-written contract should help avoid arguments about what’s been agreed. It should also provide a legal framework for how to remedy in case of a breach.
What kind of contracts do I need?
The kinds of contracts you need will depend on your business. If you sell products or services and regularly enter into agreements with business customers and suppliers, you’ll have regular terms that you’ll want to apply to each transaction or project. You can then add the specific details of the job, such as the goods and services to be provided, dates, price, and any additional points that you’ve agreed for that piece of business.
What should I include in my contracts?
Naturally, what goes into your business contracts will be influenced by the type of business you’re in. But there are some common elements to cover:
Parties. You will need to list the parties involved in the agreement. The contract is an opportunity to confirm that the business or company you’re dealing with is legitimate.
Description. Be sure to include details of the goods or services being sold or provided.
Price. Your written agreement should make the price clear and include any specifics, such as whether it’s a fixed price, based on time spent, or some other defining criteria.
Payment terms. Different agreements have different payment terms. Your contract should clearly state when a payment will be made, such as in advance, upon completion of work or even in instalments over time.
Specific undertakings. Outline what each party must do for the contract to operate. For example, if you’re selling goods; who will arrange for delivery, will the buyer have the right to inspect and reject the products, and when will ownership of the goods pass to the buyer? If you’re providing services; what is the scope of the services, what constitutes the deliverables of those services, and what do you need the client to do so you can provide the services?
Duration. Your contract should clearly state how long the agreement will last.
Termination. Early termination of a contract may result for a variety of reasons including a party going into breach or giving notice. Consider which circumstances might apply and include these in the contract.
Variations. Changes to a contract after it’s signed are referred to as variations. It’s important to document any agreed variations in writing.
Representations and warranties. These refer to legal promises which, if incorrect, could result in a legal claim. For example, if you’re selling goods, you’ll be making commitments about their suitability and performance. If you’re providing services, your commitments will be about their standard of performance.
Liability. Clarify an overall limit on your liability for loss or damage caused by your business to ensure your liability to the contract is capped. If you don’t, you could potentially have unlimited liability for what might be a relatively small piece of work.
Governing law and disputes. Consider which law will govern the contract and where potential disputes will be handled. This is particularly important for contracts with an international dimension.
Who are Paper Rock Docs?
Paper Rock is a legal template service that provides a flexible, reliable, and cost-effective solution to securing business agreements. Find out more at PaperRockDocs.com.