In this brief guide we have outlined some of the most important commercial contracts for businesses. The intention of this guide is to touch upon how some commercial contracts can help businesses. For more in depth and bespoke advice, please contact a member of our Business team.
Term and conditions are your most important commercial contract - whether you are a sole trader, partnership or a limited company.
The terms and conditions govern the relationship between suppliers and customers and set the tone with the outside world as to how your business operates. The contents of terms and conditions can vary tremendously depending upon whether goods or services are being bought or sold and the nature of those goods. For businesses that trade over the internet specific terms and conditions can govern the terms on which this trade takes place. Robust terms and conditions can help ensure that a business is adequately protected and can have an important impact on vital factors such as cash flow.
Terms and conditions set out the obligations and responsibilities of the parties. When considering what terms to include it is often useful to imagine your most awkward customer. Terms and conditions typically deal with:
- - When payment for the goods is to be paid
- - Whether interest can be charged for late payment
- - When, where and how goods or services are required to be delivered
- - Who is responsible for the insurance of goods in transit
- - Who is responsible for delivery or collection and the associated costs
- - Limitation of liability
- - How the contract can be terminated and who has the right to terminate
There are ways in which terms and conditions can be drafted to limit the liability of a business and this can afford a business invaluable protection. The extent to which this is possible will depend on a number of factors. Whether a business is dealing with consumers or business to business is one such consideration.
It is important that terms and conditions are clear. Drafting them in plain English helps to ensure this and means that all parties know where they are. In the absence of terms and conditions governing a contractual relationship, it is not clear at all how a matter will be determined in the event of a dispute. This results in uncertainty for a business which could prove costly. Robust and clear terms and conditions will remove any risk of this.
In order for terms and conditions to become enforceable the other party needs to be made aware of them. This should be done by displaying them as often as possible-on the back of quotes, orders and invoices.
A business's terms and conditions should be tailored to suit their needs. Terms should be reviewed every couple of years to ensure that they still work for your business, as often the way a business operates changes or evolves over time.
Many partnerships actually run without a Partnership Agreement. If nothing ever goes wrong or they can always sort any issues out between them then that is OK.
However, both life and business generally throw up problems and issues that need to be dealt with. When this happens you can sometimes find that your business
partner has a completely different view to yours, and had assumed all these years that you were thinking the same as them. That's when things can start to go downhill.
Whether you're starting out a new partnership or have been in one for a while, a Partnership Agreement makes good sense. A partnership is automatically formed when two or more people decide to work together for the benefit of making money, and a Partnership agreement sets out how they agree to do business together. Giving thought to the various aspects of running a business and agreeing them together means that when things do happen you've already given it some thoguht and you each know where you stand. If there are differences of opinion they can be calmly sorted out while drawing up the agreement rather than when you are already in the middle of a crisis.
The main items for inclusion in a Partnership Agreement are:
- - Commencement and Duration
- - Partnership Name
- - Place(s) of business and ownership of the property therein
- - The accounts system to be used
- - Banking arrangements
- - Capital, current accounts, drawings/salaries
- - Partners obligations and duties (Holidays, hours of work and commitment)
- - Maternity leave
- - Management and meetings
- - Partners authority and any limitations
- - Retirement and expulsion
Any limited company with more than one shareholder should have a Shareholders Agreement as it contains the rules by which the shareholders agree to operate
Shareholders Agreements ensure that the running of the company and the responsibilities of the shareholders are properly clarified so there is certainty as to what can or cannot be done and decisions are taken by consensus and discussion. As a result, having a Shareholder’s Agreement in place is more likely to reduce the potential for conflict between shareholders and this will help the business to be run smoothly and profitably.
In brief a Shareholders Agreement:
- - is a cheap way to minimise any potential for business disputes between shareholders by making it clear how certain decisions are made
and also by providing a framework and procedures for dispute resolution.
- - will provide a procedure to allow the parties to go their own ways in the event of a stalemate.
- - can make provision for what happens in the event that a shareholder’s personal circumstances change to safeguard the remaining
shareholder’s financial interest in the company in the event that a fellow shareholder dies or wishes to leave/retire.
- - can provide for a right of pre-emption, or first refusal in the event that a shareholder should die or wish to exit. It is only in
the event that the remaining shareholders do not wish to exercise their right of first refusal that the departing shareholder’s shares may be offered and
sold to a third party.
- - can control minority shareholder by placing restrictions on them if they leave the company and compelling them to transfer their
shares in certain circumstances such as when the majority wish to sell the company to a third party.
- - can also protect the rights of minority shareholders and the investment value of their shareholding. Without an agreement,
majority shareholders may force issues that are not in the minority shareholders’ interests.
A confidentiality or non disclosure agreement allows a business to share potentially sensitive information with other parties in the course of business
A confidentiality agreement allows information and ideas to be shared and for the parties to agree not to share information with third parties regardless of whether a business relationship continues. Businesses should consider using confidentiality agreements in discussions with:
- - Stockists
- - Investors
- - Manufacturers
- - Marketing agents
Factors you might want to consider for inclusion in a confidentiality agreement include:
- - Duration of the agreement
- - Exactly what information is covered in the agreement
- - Whether it is mutual or not
The presence of a suitably drafted confidentiality agreement allows your business to engage in meaningful negotiations safe in the knowledge that you are legally protected against important and potentially damaging information being passed on to third parties.
At Fidler & Pepper we make it our business to help your business:- whether you are just starting out or are well established. We can offer comprehensive and no nonsense legal advice on business matters and with our Business Fixed Fee Menu you will know the costs of this from the outset.
It is vital that you seek the appropriate professional advice to give your business the best chance of success and that is where we come in! Call our Business team on 01623 663246