Legal Advice

4 Essentials of Legal Business Contracts


A contract is a legal agreement between two parties that can be enforced by a court of law. If you have a business you will need many different kinds of contracts. Even though many people just have verbal agreements with nothing written down these are difficult to prove in a court of law should some unforeseen problem require it. Commercial lawyers will tell you that a contract should be written by a lawyer and signed by each party.

Contracts can be simple and easy or more complex and difficult to understand, but all should have these 4 important points to be legally binding.

  1. An offer
  2. An acceptance
  3. The intention of creating a legal relationship
  4. A consideration, which is usually but not always, financial.

Such a contract can still be invalid in some cases, for instance when –

  • It entices someone to commit an illegal activity or crime
  • It is entered into by a minor, a bankrupt person or someone who is mentally incapable of knowing what it’s about.
  • It was agreed to under duress or due to misleading conduct or undue influence.

Some contracts are written out on standard forms and only need to be filled in. While this makes it easy, often the terms are not negotiable and favour the party who offers the contract. This is often the case for a contract between businesses and employees. That is why it is important to read everything thoroughly and make sure you agree to it all before signing.

It is also important to never leave a blank space in a contract you are signing as this can be filled in by someone else and there is no way of proving it was not you. Always cross out the space if you don’t need to fill anything in there. If any changes are made to such a contract, make sure you and the other party both initial the change.

When your business is offered contracts, make sure they are examined by your lawyer.  This can avoid problems later on by ensuring you know about and agree to all the terms and can get out of the contract with no or only nominal compensation to be paid or delivered. When you offer a contract to anyone, make sure it is done legally by having a lawyer draft it. They can ensure there are no loopholes to cause you problems.

While a contract can be ended by mutual agreement, it can also be ended by one party who has an unforeseen problem such as ill-health, or due to a breach of the terms by one of the contracted parties. It is wise to include a clause that allows both parties to end the contract by providing written notice to the other party.