“A valid contract requires voluntary offer, acceptance, and consideration.” – Robert Higgs
Are you the owner of a Small Medium Enterprise (SME)? Or, are you perhaps self-employed? If so, have you ever needed to draw up or sign a business contract?
What is a business contract?
These and many other questions around the topic of the legalities and structure of a business contract are all valid and deserve a considered answer. Thus, by way of answering these questions, let’s reflect on the following points:
The business contract and its components
As defined by smallbusiness.chron.com, and echoed by a Warren business lawyer, a business contract is a “legal agreement between you and another party and may be used in situations where services are rendered for a fee or specific duties are required to be performed.”
Because the contract is a legal agreement, it stands to reason that it needs to be structured in a particular format. And, it must include the ensuing key elements:
Entity names
The names of all the people and business entities involved in the agreement must be included in the contract. For example, if you are a software developer and are being contracted to develop business software for a particular business, the agreement must include your name, or your company’s name, and the name of the business that is contracting your services.
Terms and conditions
Essentially, the terms and conditions section of the business contract spells out the rights and responsibilities of each party. These depend on the type of agreement drawn up between the parties.
By way of an example, if we consider our case study of the software developer highlighted above, the terms and conditions will include delivery dates, the total cost of the software development, the business specification indicating the software’s primary function and purpose, and any other terms and conditions that pertain to the project.
Consideration
Succinctly stated, this section “spells out what each party stands to gain from the business arrangement.” Thus, back to the software developer example, the company that has hired the developer’s consideration is the finished product. In contrast, the software developer’s receivable is the monetary remuneration for the delivered product.
Competent parties
A legal contract is deemed null and void of one of the signatories is not mentally competent when signing the document. An excellent example of this point is the agreement will be considered null and void if one of the signatories was under the influence of drugs or alcohol at the time of signing, and the other signatories were aware of this fact.
Legal purpose
This business contract will only be valid if it has been drawn up with a legal purpose in mind. In other words, if it is an agreement between two parties to commit a crime like develop software to defraud the business’s clients, neither party would have any legal recourse if the other party failed to deliver their side of the agreement.
Final thoughts
As a parting thought, it is wise to consult a legal expert when drawing up a business contract to ensure that the legal terminology and all of the above elements are included in the contract. Otherwise, the agreement might end up deemed null and void with no recourse in the event of one party not fulfilling what was agreed and is expected of them.
