Donal Bannon is a partner at Morecrofts, and a commercial law solicitor.
He answers some of the most common questions we receive from business owners about commercial contracts.
What are the basic business contracts every company should have?
There are some fundamental contracts that every organisation should have in place which will be invaluable at some point during the business cycle. These are;
- Shareholders’ agreement – This is a contract between the owners of the company which sets out who will manage the business, how they can sell their shares and how their shares will be valued and how they can be forced to sell their shares if certain events happen.
- Terms of business (T&Cs) – These are the legally binding commitments of both parties to an agreement which set out what each party will do for the other and how the agreement can be ended.
- Employment contracts – These are the terms upon which a person is employed by another which confirms how much money and other rewards the worker will receive, how many holidays they are entitled to and how long the agreement will last for and how it can be ended
- Director Service Agreements – This is similar to the employment contract but is used when a director of the company is being employed by the company
- Lease agreement if renting and supplier agreements – A lease agreement is a contract between the owner of a property and the person who wishes to rent it from the owner. It includes details of how much rent is to be paid, how long the lease is to last for and how it can ended before then and what condition to be returned to the owner when the lease has ended. Supplier agreements are made between the business supplying goods or services to the person paying for them and set out what each party will do for the other and how the agreement can be ended
- NDAs are essential if sharing confidential information – Non-disclosure agreements otherwise known as confidentiality agreements are used when different persons wish to provide confidential information to the other for the purpose of exploring whether they can work together on a particular project. The agreement prevents the receiver of the confidential information from revealing such information to other persons.
Can I just buy a general template for each contract?
Usually yes but they are very generalised and could be a costly mistake as they will not deal with a company’s particular situation.
For example, terms and conditions for the seller of goods would be useless if the seller is providing services, or standard contracts may not contain any or adequate caps on liability should things go wrong or they may refer disputes to be settled outside England and Wales.
It’s important to see a solicitor to ensure that from the outset, your contracts will cover your individual needs.
My business is running fine on trust with suppliers – so do I need to put contracts in place?
Trust can quickly evaporate when a dispute arises or the economic outlook changes; supplier agreements protect both parties by making it clear what responsibilities each have to the other party.
How often should I review business contracts?
Annually or earlier if a problem arises which is not addressed by the existing forms of agreement.
Updating terms need not be costly especially if you have an annual commercial retainer with your solicitor. Your solicitor may not make you aware of required updates and you must check them regularly.
They often only require minor tweaking e.g. since Covid 19 hit many businesses are choosing to amend the “Force Majeure” clause which offers protection in the event that a person is unable to perform his part of a contract due to events outside his control.