When it comes to legal advice and business support, legal services from a professional legal team is something that you simply cannot be without. Whether you need assistance with your debt collection efforts, or legal advice when signing agreements, a team of qualified attorneys is the ideal solution to protect your business. The unfortunate thing is that small businesses cannot afford to retain an entire legal army.

Another way to upkeep protection for your business is to ensure that all contracts entered into will not harm your business.

According to Monisha Prem, in an article published by SME, a written contract is the best way to protect a business relationship. It outlines the terms of the agreement in plain black and white so that there’s no confusion and no misunderstandings.

There are 3 basic types of contracts that are important in a business namely: Constitutional contract, Relational contract and Transactional contract.

Constitutional Contract

The most important document in the constitution of a company is the Memorandum of Association of the company. The Articles of Association is the second most important document that needs to be registered by any company for its incorporation, registration and subsequent operation. These contracts are signed by the members of the company and lay down the rules for the internal management of the company.

Relational Contracts

A relational contract is a contract whose effect is based upon a relationship of trust between the parties to which it pertains. These contracts establish and manage rights and obligations between various business parties such as suppliers, customers and employees. An example of this type of contract would be a contract of sale, an employment contract, negotiable instruments etc.

Transactional Contracts

These contracts regulate commercial transactions such as purchase and sale of assets or shares, or raising debt or equity. These contracts may include clause referring to what will be exchanged, when the delivery and inspection will occur, how delivery will be made and may include other additional matters such as guarantee, liability and confidentiality. An example of this type of contract would be a non-disclosure agreement.

What do business owners need to be aware of before signing a contract?

• Does the other party have the capacity (ability) to enter into the agreement and are they authorized to enter into this kind of agreement
• Are there any specific laws that apply: such as those regulating the selling or buying of land or dealing with long leases or ante-nuptial contracts?
• Does the contract have any illegal element that is contrary to any law or society, if so the agreement cannot be enforced
• Ensure that the obligations for each party are possible to be performed.
• Understand clearly how to terminate or exit the contract and under what circumstances you are entitled to do so, such as material breach.
• Be aware of significant dates or events that apply to each party the consequences of not complying.

Tips:

• Do not enter or sign any agreements that you do not fully understand
• Ensure that the contract is well prepared .This will protect each of the parties’ business interest
• Ensure that each party’s rights and responsibilities are clearly set out and are well understood.