Are your contracts legally binding?
Contracts are a critical part of your business success.  They not only confirm agreements but they provide protection if parties seek to breach those agreements.  Furthermore, contracts also serve as a demonstration to potential investors that your business has customers who are locked in.

Legally binding contracts do not have to be written (a contract can be oral) however it is always wise to get it in writing as it provides you with material evidence to prove the terms of the contract. For an SME, the main reason for which contracts are used is to set out an agreement with a customer. For example, the contract will state your intention to provide a product and for your customer to pay for that item within a given set of terms.

So what are the key questions to answer when it comes to preparing contracts for your business?

What is the best way of making a contract?

For a small business the best possible option for developing a contract is to have both parties sit down, read the contract, agree on its terms and sign the document. However as your business grows, this process will become time consuming and almost impossible to manage. Instead you will quickly turn to the variety of communication options available to you (email, fax, phone etc) to get your contracts signed as promptly as possible so you can begin providing services to your new clients. The important thing to remember is that as long as the contract has been provided to the customer, signed and returned to you, then any breach of contract can be legally disputed.

What are unfair contract terms?

If you ever end up in court due to a dispute about a contract the terms and conditions will be closely scrutinised. Therefore you should be aware that if a contract isn't drawn up properly there will be ways for a person to get out of it.

Unfair contract terms may mean that the contract is not legally binding - this is a key reason to ensure that the terms of the contract are clearly set out and that they are fair.  Generally, a contract is classified as unfair if there is a significant imbalance in the terms towards one of the parties' rights and obligations.

What happens if the contract is unclear?

If you do end up in the courts with a contract dispute it is very important that the contract is clear and concise - if your contract is deemed to be vague or ambiguous it may be determined that it is not legally binding. The terms and conditions must have been clearly set out in fact (not just in principle).
Legal disputes can be long and costly. In addition, breaching a contract is a serious matter that should never be taken lightly. This is why it is so important to get your contracts right from the very beginning.

Should I seek expert advice?

There is no doubt that the legal system is complex and difficult to navigate for those who aren't experts in this area. So, the smart thing to do is to seek professional help.  It is understandable that SMEs, particularly start-ups, try to save costs by doing everything themselves however developing a contract is a critical part of your business that you really cannot afford to get wrong.

If you are confident you know what you are doing and you want to save yourself a few dollars, the best way to tackle your contracts is to draw them up yourself and have a lawyer look them over to ensure they are watertight from a legal perspective.

Ultimately, using the services of an expert will give you peace of mind that this very important task has been done correctly!

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