5 Things Every Entrepreneur Must Note About Contracts in Business
Contracts are a big part of commercial and business transactions.
As a matter of fact, in order for your business to qualify as a business, it’s either you sell physical goods, intangible services or digital products. In short, what qualifies a business as a business is the exchange of something of value with customers or clients for which they pay in cash or kind. That is a contract of sale.
Apart from the basic contract of selling, your company will also at some point enter a series of contracts and that’s why it is important to lay the proper foundation by noting these five (5) important things about contracts in business.[Great Read: How to Sell Your Farm Produce Directly to Consumers]
1. There must be an offer
Firstly, for a contract to exist, there must be an offer by one party and acceptance of that offer by the other party or parties.
For example, Magnolia Limited (a fictitious company name) needs a legal adviser for their company and they decide to reach out to our law firm, Charis Legal Practice and after a series of negotiations, they make us an offer. If we accept their offer and both agree on the scope of our services (which they need), the duration of the transaction and many other important details (acceptance), we then go ahead to document the terms and conditions of the offer in a written contract.
The written contract will contain all the necessary details of our business arrangement which the representatives of the company (Magnolia Limited) and our law firm (Charis Legal Practice) sign.[Great Read: 6 Top Reasons Why Your Social Media Engagement Efforts are Not Leading to Sales]
2. There must be a consideration
In every valid contract, there must be a consideration. Consideration means a party will give the other party something in return for the stated benefits. Each party has a benefit to be gained from the other party and in exchange for that, it has obligations to fulfill toward that party.
Following the example above, if Magnolia Limited agrees to pay X million naira as fees in exchange for the legal services our law firm will provide, that is a consideration.
However, consideration doesn’t have to be money all the time. What makes a contract to have consideration is that there’s an exchange for value. A great example of consideration that does not involve money is “trade by barter.”
Trade by barter occurs when items of worth are exchanged for other items of worth (usually around the same value) or when services are exchanged for services. For example, an interior designer may offer interior designing serves to a digital marketer who offers digital marketing services to the interior designer in return.
3. There must be an agreement between the parties entering the contract
An agreement is the bedrock of all contracts and it is the document that spells out all the necessary details that a contract entails. Without a solid agreement documented and signed by both parties, the contract may not be binding in the court of law. As a business owner, do not enter into a contract with anyone or business under any circumstances without a written agreement that’s duly signed. If you do, you might have yourself to blame for it sooner or later. Using the example of the Magnolia Limited and Charis Legal Practice above, the agreement must detail the fees, mode of payment, mode of the delivery of the legal service, duration, scope of services, termination of the contract, dispute resolution, etc. in a written contract.
4. It must be for a lawful purpose
For a contract to be binding, it must be for a lawful purpose. An agreement between two parties to defraud, harm or cause pain to another person is not a contract. A contract can only be entered into for a lawful purpose.
Therefore, if someone approaches you to sign an agreement that contains illegal terms and conditions, you must decline to sign such an agreement. Prior to signing an agreement, be sure to read line by line especially the fine print. If the contract involves a substantial amount of money or something of extremely high value, the best way to protect your interest is to retain the services of a legal professional.[Great Read: 6 Persuasive Phrases That Can Help You Make More Sales]
5. There must be an intent to create a legal relationship
An intent to create a legal relationship means both parties agree that if a party doesn’t do what he or she agreed to under the contract, the law can compel that party to comply with what they had promised.
Remember, only a duly signed contract is recognized by the law. If one party fails to sign the contract, the other party cannot assume that there is a contract. A contract becomes valid when the signatures of both parties are boldly printed on the contract document(s).
This information in this article is meant for educational purposes.
Nothing in this article constitutes legal advice or creates a lawyer-client relationship.
Please contact your lawyer for legal advice.
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