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If it's That Obvious, Why Don't we Apply This to Business more Often?

  • by M Prem
  • in Contracts

A written contract is the best way to protect a business relationship. It outlines the terms of the agreement in plain black and white so that there’s no confusion and no misunderstandings. A well-prepared contract can do a lot more than this. So why do we insist on engaging in business on less than a promise and a handshake?

Can a legal contract help you grow your business?

Most certainly, such as a contract that ensures timeous payment by clients or protects if the client fails to pays altogether – having a direct impact on business cash flows. The contract secures an already negotiated position, so that the business owner can focus on profit-making activities.

What are the implications of signing a written contract?

The parties to the contract are bound by their promise (obligation) and duty as stated in the contract. The contract will stipulate what the consequences are of not doing or failing to deliver as promised.

What to look-out for when signing a written contract?

  • Does the other party have the capacity (ability) to enter into the agreement : a minor will not have capacity or whether the person signing on behalf of an entity (company or CC) is authorised without limitations of power to enter the agreement.
  • Are there any laws that apply : such as selling or buying land or dealing with long leases or ante-nuptial contracts. Does the contract have any illegal element that is contrary to any law or society, if so the agreement cannot be enforced? Ensure that the obligations for each party are possible to be performed.
  • Understand clearly how to terminate or exit the contract and under what circumstances you are entitled to do so, such as material breach.
  • Be aware of significant dates or events that apply to each party and the consequences of not complying.

What are main types of written contracts in business?

  • Constitutional Contracts :
    Contracts that regulate powers and limitations such as Memorandum of Incorporation, Partnership Agreements, Joint-Venture Agreements.

  • Relational Contracts :
    Contracts that establish and manage rights and obligations such as supplier, customer, employee, service-level or shareholder agreements.

  • Transactional Contracts :
    Contracts that regulate commercial transactions such as purchase and sale of assets or shares, or raising debt or equity.

Remember that every contract is different and utilising standard contracts are dangerous. A standard contract will expose your business to any of the above risks. No business is standard therefore a standard contract is not recommended. In addition, different contracts are required for different stages of the business-life-cycle : start-up, growth, maturity and decline stages.

 

Tags: Contracts

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  • Contracts (6)
  • Corporate Governance (1)
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Latest Publications:

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