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Small Business: Working with Contracts

  • Commercial and Business Law, Corporate Advisory
  • Christian Tager
  • No Comments
  • March 1, 2011

Small Business: Working with Contracts

For most small businesses, contracts are part of everyday life. Whether selling goods, purchasing materials, employing staff, negotiating and signing on arrangements with customers, clients and providers, it is important to understand contracts and their implications for establishing best practice and solid business agreements. It is imperative to become familiar with the essentials of contracts, and to consult your solicitor before signing anything.

The Defining Elements of a Contract

According to the federal government’s advice to small business, there are four essentials to understand within a ‘legally binding’ contract. These are the offer, the acceptance, the intention of legal consequences and the ‘consideration’ i.e. something in exchange for something of value.

The Offer

The offer refers to stating the ‘something’ being provided clearly. In other words, whatever it is that is being put forward as the product or service, must be stated clearly. It can be removed or changed at any time before it is accepted, unless it is offered for a stated time. It is distinguished from an invitation or sampler, and, for this reason, it is important to clarify the intention of written documents. It is helpful to engage a solicitor to prepare and interpret contracts. Types of legally binding written documents include advertisements that include price details; tender submissions; formal quotations and proposals to lease. Time is an important aspect of an offer and it is astute practice to be sure that the offer can be continued for the period stipulated.

The Acceptance

Acceptance of an offer can be given verbally, in written form or by an action that clearly indicates acceptance. This last form of acceptance is becoming increasingly important as small businesses develop their own websites and offer products and services online. The action of acceptance online often involves reading a long, small print agreement, sometimes difficult to comprehend for the lay person, and often it requires the customer to tick a separate box indicating that you have understood the terms and conditions of acceptance. If there is a long-term commitment or substantial finance involved, it is essential to seek legal advice before ticking these acceptance buttons online. In this age of fast pace digital services, small businesses are often involved with the online contract. It is crucial to fully understand what is on offer and that when acceptance is given with conditions, the acceptance is not complete until these conditions are met. Inaction or lack of response does not indicate acceptance. Acceptance requires a definite positive action. When dealing with acceptance by mail, it is the time of posting that completes the acceptance and makes it binding. However, acceptance by email or fax becomes binding at the time of receipt. Check these details with your solicitor.

Intention to be bound by the agreement

It is essential that parties to an agreement understand the intention of legality. Clarity is provided and conflict is avoided when parties grasp, at the outset, that the agreement they are entering into is legally binding. Insisting on formalities of spending time with signatories and explaining the legal consequences of acceptance, can save protracted legal wrangling at a later point.

Parties to an agreement can decide to not be legally bound by it, however, this intention must be clearly stated in the contract. As it is normally assumed that a contract will be legally binding, it is prudent to state clearly to all parties if there is an intention to the contrary.

Consideration

This term refers to the exchange of something for something of value. In most circumstances, this means a financial transaction, but there is no stipulation that this has to be an equal or fair trade. Even small items of value are ‘consideration’ and hence require to be treated with due attentiveness.