ESSENTIAL SMALL BUSINESS CONTRACTS   

ESSENTIAL SMALL BUSINESS CONTRACTS  

 

How to protect yourself and your business… 

Most of the transactions in your businesses are governed by some form of contract – whether formalised on paper or expressed verbally. In some instances, however, the law does not require written agreements to govern the relationship and detail the obligations of all parties. Plain language should always be used to prevent misunderstanding, disputes and non-performance. 

CHECK THAT THEY’RE VALID 

Regardless of the type of contract, or what form it takes, it must meet a few conditions: 

  • Whoever signs the agreement must be legally allowed to do so. So minors, for instance, can’t conclude contracts without the consent of their parents or legal guardians. And it becomes very difficult to conclude a contract if you have been declared insolvent, particularly if the deal relates to assets. If the contract is entered into with a company or close corporation, one of its members must sign.
  • There must be some intention by all parties to reach consensus and agreement on their obligations.
  • The terms of the contract must be certain; in fact a contract is invalid if the language is too vague, obscure, and indefinite to determine the intentions and obligations of the parties.
  • The contract mustn’t break any laws. For instance, according to the Competition Act, competing firms can’t agree to fix prices.
  • Any and all performance levels set must be physically and legally attainable.
  • The contract must comply with any and all formal requirements – some contracts have to be recorded on a public register, or notarised, for example. 

TYPES OF CONTRACTS 

You probably have a whole range of different agreements in place; here are a few of the more common ones: 

  • TO PROTECT YOUR BUSINESS

    Association agreements, shareholder agreements, memorandums of incorporation, partnership agreements and trust deeds all govern the relationship between the owners of the business. You should have the applicable contract in place from the moment your doors first open. It defines your rights and obligations, really comes into play when you start making or losing money.

    Non-disclosure or confidentiality agreements are necessary if you plan on presenting your business idea to possible investors or prospective new co-owners or customers of the business. For stronger protection, you should investigate what intellectual property aspects may be registrable, such as patents, designs and trademarks, before presenting your concept to anyone outside the business.

    A lease agreement protects the location of your business. Before signing, make sure you are fully aware of the renewal term and conditions and escalation provisions.

    If you don’t have employment agreements in place, the provisions of the Basic Conditions of Employment Act apply. There are a number of good reasons to ensure you have these in place. You can for instance further protect your business by including a reasonable restraint of trade clause for key staff members, particularly if it would be highly detrimental to lose this employee to a competitor. Employment agreements can also include provisions to protect your intellectual property, for example, client lists.

    To ensure you own the copyright of your website content or design materials developed by sub-contractors, a copyright assignment agreement should be put in place.

    Insurance agreements are pretty standard. But make sure you understand what you must pay, whether or not there are any escalation clauses, what is covered and under what circumstances the insurer will pay out.

    Terms and conditions for your website are important. If you run an online store, the Consumer Protection Act (CAP) governs any advertising and transaction. The Electronic Communications Transactions Act (ECT) also details the information that must be included on your website. These requirements are usually included in your website Terms and Conditions. The CPA further outlines specific requirements for guarantees and return policies.

  • PROTECTING YOUR CUSTOMERS

    Consumer contracts are governed by the CPA – whether they are in writing or not. All consumer agreements must be in plain language.

    Franchise agreements are also regarded as consumer agreements and must be in writing and signed on behalf of the franchisee.

    Your credit agreements with suppliers or customers are governed by the National Credit Act (NCA). These agreements must be in writing, either soft or hard copy. The NCA also prescribes forms and minimum information to be reflected for small, intermediate or large agreements, depending on the type of agreement. Consumers are allowed to have a sight of the credit agreement before entering into the agreement.

  • PROTECT YOUR SUPPLIERS

    Manufacture, supply and distribution agreements are applicable, especially for businesses involved in retail, distribution or wholesale of products. To ensure that all parties fully understand their rights, you should probably have these in writing.

    Service agreements apply to any third party providing a service to your business on a sub-contract basis. They would cover IT support, management service agreement or consultancy agreements with persons providing professional or training services in your business. The most important aspects to agree on are the performance which is expected, possible turn-around times and payment.

ELECTRONIC CONTRACTS

Strictly speaking, any of the above agreements can be produced electronically. If agreements are concluded on a website, or via email, the ECT comes into play. The Act was designed to help consumers who contract with suppliers by electronic means for the supply of goods or services.

As mentioned above, the ECT Act prescribes minimum information that must be listed on the website of any business offering goods or services for hire, sale or exchange by way of electronic communications. Depending on the layout and functionality of the website, the prescribed information could be included in the general Terms of Conditions for the use of the website.

Customers can cancel electronic transactions within several days after receiving the goods, and within seven days after conclusion of the contract in the case of a service agreement. But a contract has to comply with certain requirements to be enforceable. The most important requirement is that the parties must have contracting capacity, reach consensus on clear terms of the agreement and comply with formalities, if required by law.

THE BOTTOM LINE

Although there are no guarantees, having the right contracts in place will go a long way to protecting your business and minimising the impact if a dispute does arise. Clear, strong agreements are business assets as they are proof of the strong contractual relations that secure your assets and revenue streams.

Reference:

Emmie de Kock – De Kock Attorneys (Your Business)