It’s all too easy to overlook the legalities of running a business. Business legal requirements vary considerably between industries, but there are some standard go-to contracts, agreements, and legal documents that all business owners should be aware of.
Professionally written business contracts and documents benefit both parties. They don’t only ensure that the proper legal relationship is in-place between parties, but they also provide clarity and peace of mind that both parties are on the same page and are subscribing to the same terms and conditions as one another.
Here is an overview of key business contracts and documents.
A commercial agreement is a business contract between two business entities.
Contracts are not legally binding just because they’re defined as contracts - certain criteria must be fulfilled to ensure that the contract does indeed have a legal standing. The opposite is also true, however, as you do not strictly need a written contract or agreement to form a legal relationship with another party.
The main purpose of a commercial agreement is to provide a legal framework by which each party must abide. The contract governs and manages a commercial process, transaction or relationship.
Commercial agreements are used to specify the official details of something that may have already been discussed informally. They’re also used to allocate risk, enabling a party to protect themselves with insurance if desired.
There is considerable debate about whether you need a legal contract for every business relationship you enter into.
There is no rule of thumb here, but common sense dictates that the more serious, long-term or high-value the relationship is, the more merit there is to creating and exchanging professionally-written contracts. However, even seemingly benign commercial relationships that present low zero risk to either party can be the source of legal disputes. The advice is to err on the side of caution and keep relationships contractual where possible.
There are many types of commercial agreements, including:
The law surrounding commercial contracts, in general, is complex and diligence must be exercised by both parties. Commercial parties are expected to carry out Due Diligence checks to ensure that they are not committing a tort (offence) by entering into a certain legal relationship.
Here are some legal documents and contracts you might be exposed to when running a business:
Letter of Agreement and Heads of Terms
These documents state the intention to create a legal relationship without actually creating one, acting as a formal agreement that provides a path forward to the creation and exchange of contracts. Letters of Agreement and Heads of Terms are generally considered pre-legal, but many people wrongly assume that they have no legal meaning. If they bear the hallmarks of a contract and do not specifically reference their pre-contractual intention then they may still be deemed as contracts.
Confidentiality or Non-Disclosure Agreements
Many business relationships involve NDAs - non-disclosure agreements - that prevent either party from leaking or sharing confidential, private or sensitive information. Businesses should consider these when entering into a relationship that involves the exchange of sensitive data.
Services agreements are created when a party is committing to providing ongoing services to a business for a fixed period or on an ongoing basis. One example would be IT security and maintenance - the contract would specify the duties of the work and how often the service should be provided.
Sales Agreements or Contracts for the Sales of Goods
Sales agreements take many forms, but at their most basic, they ensure that the terms and conditions of a sale are agreed between both parties with regards to payment obligations, dates, delivery, etc.
Contracts are required to maintain the exclusivity of a product or service to one particular business. Without an exclusivity agreement, the producer or owner of a product is free to enter into sales agreements with whom they please.
One of the most common legal contracts for small businesses - invoice agreements are similar to sales agreements in that they provide payment expectations, e.g. price, delivery, retained rights, etc. Businesses can add terms and conditions to invoices to allow them to retain rights over the work or products until payment is complete.
Employment law is an entire domain unto itself. Employment contracts set out the relationship between an employer and employee with regards to roles, responsibilities, wages, holidays, etc.
Commercial Property Contracts and Leases
Commercial property contracts set out the legal relationship between the landlord(s) and tenants(s) of a commercial building, including what types of business activities are permitted there, commercial rents, lease terms and restricted covenants.
At their most basic, contracts should contain information on the price, payment terms, and specifications of the goods or services. Beyond that, there is a myriad of terms and conditions that can be added to a commercial agreement.
The terms and conditions of a contract are written particulars that describe the obligations, responsibilities, restrictive covenants and rights of each party. Typical subjects covered by the terms and conditions include conditions of use, payment and delivery terms, non-disclosure or privacy agreements, terms of delivery, limitation of liability and the refund policy.
The terms and conditions of commercial contracts are quite open-ended, but they must still be reasonable. They do not invalidate all statutory rights of the agreeing party, for example, you could not contract someone out of their right to claim negligence due to an accident at work if the business is to blame, for example.
A good contract is clear, fair, reasonable and makes proper reference to relevant law. Most commercial contracts should be created by a solicitor or law firm that specialises in contractual law, especially if the intended relationship has serious legal implications or presents some form of risk. Contractual business legal advice should always be administered by a solicitor trained in contract law.
It’s always best to be safe than sorry when it comes to commercial legalities. In the event of a dispute, the contract is invaluable and can help prevent issues from going to court.
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