The 7 dos and don’ts of business contracts
We all enter into contracts on a daily basis, often without us even realising. When we purchase a newspaper in our local cornershop, when we order an item on the internet or when we park our car in a car park. A contract does not have to be drafted by lawyers, signed or even written down to be legally binding.
Similarly, businesses of all sizes from small local traders to large multinationals rely on contracts to operate on a day to day basis. Whilst some of these contracts, because of their importance, complexity, value or risk, require the specialist assistance of lawyers to negotiate and prepare, the vast majority will be entered into informally between businesses perhaps even during a telephone conversation or over an exchange of emails.
Below are some helpful DOs and DON’Ts for business owners to consider when negotiating or entering into contracts:
- DO enquire whether the person that you are dealing with has the power to bind the business that you are contracting with if that person is not a director.
- DO NOT mislead the other party. Potentially anything you mention, even if just a passing comment in an email or in a telephone conversation, if relied upon by the other party may become a term of the contract itself and allow the other party to make a claim if the comment is later found to be untrue.
- DO consider whether any negotiations prior to the contract being finalised should be kept confidential. This is especially important if your business is to be sharing sensitive or important information.
- DO NOT offer bribes or inducements to enter into the contract. This is a criminal offence and the penalties are severe. The first successful prosecution of a company for corruption offences occurred earlier this year after a printing company based on the South Coast offered bribes to foreign officials for large contracts. The company was fined £1.3million and two of the directors of the company received prison sentences.
- DO mark correspondence as either “Subject to Contract” or “Not Legally Binding” if negotiations are still ongoing and you do not yet intend for a legal contract to come into existence.
- DO NOT enter into a legally binding contract by mistake. Remember a business can enter into a contract over an exchange of emails, during a telephone conversation or even by beginning to perform certain obligations under the contract.
- DO consider whether it is appropriate to include some “anti-poaching” terms into a contract for example to prevent the business you are dealing with poaching your business’ employees or customers.
Finally, if you think the importance, potential risk, complexity or value of the contract is such that it should be professionally prepared, consider instructing solicitors to assist you with it.
Coffin Mew’s Corporate team has established a reputation as one of the leading transactional teams in the region.