Businesses that are looking to reach the next level need to see growth in many different areas including, among others, their market access, client base, revenues, job creation and investment.
Contracts can help you at every step of the way on your growth plan. Indeed, it may be that you already have contracts that you don’t necessarily consider formal contracts.
Let’s take a quick look at the types of contracts you should be considering for your business, how you can form a contract and what your contracts need to say.
What type of contract can I use?
In its simplest form, a contract is an agreement between two or more parties that sets out various commercial and legal matters that the parties agree to be bound by. How you choose to record your contracts is up to you, but generally a written contract will take one of two forms:
- standard form terms and conditions which tend to be uniform with very little negotiation taking place from customer to customer; and
- bespoke agreements. These types of agreement are non-standardised and are unique to each transaction.
As your business grows, you may find that you are contracting with an increasing number of suppliers and customers. When this is the case, your contracts should be well thought out and complement each other. This allows the business to develop its products/services with suppliers on one hand, and on the other to sell them to customers on terms that are favourable to the business and do not expose the business to risk through gaps in the contract.
Getting contracts to harmonise in this way will depend on a number of different factors, including the bargaining power of the parties and successful negotiation from your team leading the discussions. There may be times when your management team/board of directors has to make decisions on contracts that expose the business to some risk.
If you are in doubt then you should speak to your legal advisers before agreeing to something which may have a significant impact on the business as a whole and not just in respect of one particular contract.
Can I get that in writing?
You don’t need to have a contract in writing, although it can help. Many businesses will most likely have entered into verbal contracts without appreciating that they had entered a formal contract at all.
So, if you can create contracts verbally why do so many businesses have written contracts prepared?
Well, verbal agreements, by their nature, have limitations if something goes wrong – you can’t just check a document. Written agreements provide clarity on the agreed contractual terms and they also help to show that the parties intended to enter into a commercial agreement.
A well-developed library of written contracts will give your business a solid foundation for growth by:
- securing supplier terms;
- establishing a network of customers who may be contracted to purchase from the business for significant time periods, thus helping to increase sales revenues;
- helping to minimise the potential for lengthy and costly legal disputes (of course, this cannot be guaranteed); and
- allowing management or your board of directors to make reasoned decisions on the liability and risk that the business may assume in certain contracts.
Be wary though, certain matters will require a written contract so that the parties’ intentions are legally binding. One example of such a requirement is for the transfer of copyright. A purported transfer which is not committed to writing (an email is not enough) won’t be effective and the copyright won’t actually transfer.
That’s great, but what do I need to say in a contract?
The content of your contract will vary depending on the subject matter, but there are certain types of clauses that will need to be considered from both a commercial and a legal perspective.
Commercially it is important that your contract is clear on who the parties are, the nature of the contract, the price to be paid and how it’s paid and how you can bring the contract to an end.
From a legal view you’ll want to be certain over, for example, the ownership of assets, including intellectual property, and the allocation of risk and liability.
If in doubt (as always) consult your lawyer.
By Craig Daniels, a Solicitor in the Corporate team at leading law firm Harper Macleod, who specialises in advising SMEs and high growth businesses.
Harper Macleod is supporting the upcoming Scotsman Conference – Inspiring Growth: Alternative ways to take your business to the next level. To find out more, or to book your place click here.