Recent Project and Job Topics > Legal

Contract Agreements

Contracts and agreements are used in business for a number of purposes. Contract agreements can refer to contracts, or the preliminary verbal agreement reached before a contract is finalized. Due to their importance and complexity, it is advisable to seek legal advice when drafting or signing contracts to make sure they are legally sound and cover all the important conditions you wish to cover – which can also save on future legal feels.  Before seeking legal advice, ask yourself questions such as whether you want a standard contract to use for multiple purposes or do you want a lawyer to be available to review and modify it?

Contracts and agreements have different legal definitions. A contract is a legally binding agreement between two parties or more, which can be oral or written. Contracts are used in business for such purposes as hiring employees and independent contractors, leases and real estate, buying or providing goods and services, partnerships and joint ventures, confidentiality agreements, non-compete agreements, franchising and selling a business. The most important feature of a contract is that one party makes an offer for an arrangement that another accepts. Thus, when planning a contract, agreement must be reached before any documentation is signed.

While oral contracts are enforceable, written contracts are easier to uphold. Certain types of contracts in some jurisdictions, such as real estate contracts, must be in writing in order to be enforceable. Electronic signatures on e-contracts are also legally binding but can be easier to challenge. While contracts are common throughout the world, different rules apply in jurisdictions and breaching a contract can lead to legal action and compensation awarded to the other party. Courts may also refuse to enforce a contract on the grounds that the contract agreement will undermine public policy.  An agreement is actually a broader term than contract, including understandings between two or more parties that might not rise to the level of a legally binding contract, concerning a particular issue, including obligations, duties and rights. However, an agreement may lead to a contract and an agreement enforceable by law is considered a contract.

There are a number of important factors to consider when drafting a contract. Of course it is imperative to know the local laws and regulations, so again legal consultation is advisable. It is easier to begin with a template contract and adapt it to suit your purposes.  Business contracts can be concise and very simply worded and do not need to contain legal jargon.  Being specific and having clear conditions can also avoid any future misunderstandings between parties. The contract should be titled ‘contract’ so its intent cannot be mistaken.  Items to include are: the date, the parties involved, details of services the company will give or receive, payment amounts, dates and interest on late payments, deadlines for services, renewal or expiration dates, termination conditions and signatures. Negotiating contracts is an important factor when reaching agreements between parties, so know the points on which you are flexible.

Many small businesses make the mistake of seeking legal advice after a contract is already signed.  It is vital to involve lawyers in the process at an earlier stage.  It is also advisable not to act according to the terms of a contract until both parties have signed the contract. With planning, businesses and individuals can be prepared and have strong, clear understanding of any contract agreements they may enter before signing any documentation or committing to any terms. Engaging legal help, even for a brief period, is key at an early stage of any businesses to ensure that contracts and agreements are effective in the functioning of the company.