At some point in the life of your business, you’ll have to enter into a formal arrangement with another party, called a contract. A contract is a legal tool that companies use to enforce the arrangements they create.
In the past, relatively few companies wrote business contracts. There was no need. Decades ago, people trusted each other more and relied on the power of reputation to guide who they worked with.
Today, though, a simple handshake simply won’t do. We live in a ridiculously litigious society in which your scribblings on pieces of paper are often more important than the actual work they represent.
Think about company accounts. Firms spend hours and hours preparing them, making sure that they have a proper record of work done, often to the point where it crowds out their actual work. They spend so much time worrying about the figures, they forget to provide adequate services to customers.
Thus, companies need to understand contracts inside out. If they don’t, they could fall foul of the law and wind up having to pay compensation, court fees and fines.
In this post, we take a look at some of the things they don’t teach you about contracts in business school.
When You Must Make A Contract In Writing
Did you know that some contracts have to be in writing?
For instance, if a contract is worth more than a certain amount of money (which changes from year to year) then you must write it down formally. You must also create contracts for the sale and transfer of land. You can’t carry out the terms of contracts more than a year after the signing of the papers. That’s invalid, according to the state.
When creating written contracts for companies overseas, make sure that you use legal translation services. The terms you use in your native tongue may have an entirely different meaning abroad.
You Could Be Creating A Contract Without Realising It
You don’t have to write down a contract for one to exist – at least not according to the law. In legal language, there is something called an “implied contract.” This asserts that buyers and sellers often enter into contracts when certain outcomes might be unfair.
Say, for instance, that a vendor provides another company with goods and services, but doesn’t immediately charge a bill. In this case, there is an implied contract for the buyer to pay at a later date. And if they refused to do so, then a court would probably uphold the contract. Not doing so would be unfair to the seller.
Every Contract Must Contain An Offer
Contracts are essentially formalised negotiations. In them, you write down what you want and what you’ll provide the other party. Usually, it is an exchange of services in exchange for money in the future.
Every contract must create an offer and acceptance of that offer. Each party in the contract must consent with their free will. You cannot force or coerce contracts. Once signed, however, the offer becomes binding. And the parties must fulfil their promises unless they are allowed to back out under the terms of the contract.
You Can Only Create Contracts For Legal Purposes
Drug dealers would love to create contracts, forcing their clients to pay. But they can’t, because you can only create contracts for legal purposes.
As a business, you’re unlikely to be doing anything outright illegal. However, you need to be careful that your contract falls within legal boundaries. Firms, for instance, need to be particularly careful when designing employment contracts. There are restrictions on how you can treat workers and what you can demand from them. So you could accidentally create a contract that has no binding power.
Remember, a contract is only valid if a court can enforce it. And no court in the land is going to enforce a contract that demands a worker spends 120 hours in the office.
Most Companies Use A Lawyer On Retainer
You can create your own contracts, but most companies use a lawyer on retainer, just to be on the safe side. Only qualified lawyers can tell you whether the contract you create is legally binding or not. They can also point out any holes or omissions and tell you what your obligations are to the other party.
It’s always a good idea to have lawyers on standby if you suspect a breach of contract. This way, you can begin threatening legal proceedings the moment that things start to go wrong.