The Importance Of Business Contracts
Most business transactions should be easy, after all, they are a simple transaction between two willing parties. Alas, there are often disputes, even in the simplest of deals, and in the 21st-century business climate it is not worth entering into any commercial transaction without a solid business contract to cover it.
Business contracts are important because they anticipate risk and deal with unforeseen worst-case scenarios by outlining the expectations of both parties, and hence, offering protection.
It is important that expert advice is taken on drafting a contract – which can be used as a template for future contracts of a similar nature – because they can anticipate issues and build clauses that protect parties against financial instability, delays and errors, personality clashes and unforeseen market conditions. Inevitably, things don’t always go as planned, so a contract protects you against that.
Having a solicitor draw up a contract also ensures that it is not just clear and concise, but it is also independent and unbiased. Business contracts are open to counter-litigation if that is not the case, and so it makes financial sense to have a proper contract drafted out.
Important elements of a contract
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The scope of agreement is essentially the fundamental basis of a contract. This outlines what work will be performed, to what due dates and at what cost. It makes sense for this to be realistic and deliverable, and also to keep it as simple as possible. This scope should also outline the circumstances under which a contract can be terminated and under which dispute resolution may be required. This scope should also include provision for when obligations are failed. This constitutes a breach of contract and may be grounds for legal action.
Clauses relating to limiting liability are also very common in a business contract. These balance risk for all parties and usually involve limiting liability for certain types of loss, or by putting a financial cap on liability for such losses.
With consumer-related contracts or those involving finance or credit facilities, it is common for these to be governed by regulations or complex statutory requirements. It is possible a contract will become unenforceable if these are not complied with.
Protection provided by a contract
Having a contract in writing protects both parties, because enforcing the terms of it are now far easier. Both parties are bound by the terms of the contract and cannot stray from them, or risk legal action, this includes issues such as poor quality workmanship.
Payment under a contract
Simply having a contract in place, including suitable payment terms, is not usually sufficient to be paid for performing it. This will usually necessitate an invoice being sent upon performance of the contract. In most cases, payment will signal the successful completion of the contract, or it may be the first part of an ongoing rolling contract.
You should keep copies of all contracts and of course, a valid contract prepared by a qualified solicitor will include a clause which clearly states when the performance of the contract terms has been satisfied.
A suitable and valid business contract is important in any business transaction because:
- It describes the responsibilities of all parties
- It describes the terms of the agreement in respect of the scope, a timeframe and payment
- It is a binding document
- It provides a framework for recourse in the event that the contract terms have not been met.
We strongly recommend that you seek professional advice on business contracts from a reputable, commercial solicitor who is familiar with business transactions.
Simple advice on business contracts from Yorkshire Powerhouse
Now you’ve read our article about business contracts, have you any more questions?
Here at Yorkshire Powerhouse, we’re happy to help as much as possible – is there anything else we can do to help you, do you have any further questions or can we help introduce you to an expert – please let us know:
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