Business ContractsWhy Every Business Should Have Them

Why it matters

Contracts are part of almost every business - from agreements with customers and suppliers to contractors, business partners and service providers.

Clear, well-prepared contracts can help establish what each party has agreed to, protect important business interests and reduce the risk of misunderstandings or disputes later.

What types of contracts might your business need?

Depending on your business, common agreements can include:

• •Client and customer agreements
• •Supplier agreements
• •Service contracts
• •Contractor agreements
• •Partnership and shareholder agreements
• •Confidentiality agreements (NDAs)
• •Terms and Conditions
• •Commercial leases
• •Sale and purchase agreements

Not every contract requires a lawyer. But where an agreement involves significant money, ongoing obligations, important business relationships or potential risk, understanding exactly what you are agreeing to before signing can be particularly important.

Should a lawyer review a business contract before you sign?

It depends on the contract and the potential consequences for your business.

Some routine, low-risk agreements may be relatively straightforward. Others can create financial or legal obligations that continue for months or years.

Before entering an important agreement, questions worth considering can include:

• •What exactly is each party required to do?
• •How and when will payment be made?
• •How long does the agreement last?
• •Can either party end the agreement early?
• •What happens if one party doesn't perform?
• •Who is responsible if something goes wrong?
• •Are there limitations of liability or indemnities?
• •Is a personal guarantee required?
• •Who owns intellectual property created under the agreement?
• •Are there confidentiality obligations?
• •How will disagreements be handled?

A commercial lawyer can review the agreement in the context of your particular business and help you understand provisions that may create significant obligations or risk.

Can you use a contract template?

Templates can be useful for some straightforward arrangements, but a template doesn't necessarily reflect the particular transaction, business relationship or risks involved.

Problems can arise when an agreement has been copied from another business, downloaded from an overseas website or modified without understanding how its different provisions work together.

The more important the agreement is to your business, the more important it can become to ensure that the contract actually reflects what the parties intend.

A lawyer can help determine whether an existing agreement is appropriate, whether particular provisions need attention or whether the agreement should be tailored to the particular arrangement.

What should a client or customer agreement cover?

The answer depends on what your business provides and how it operates.

A client or customer agreement might deal with matters such as:

• •The products or services being provided
• •Pricing and payment terms
• •Deposits
• •Delivery or completion dates
• •Changes to the agreed work
• •Cancellations and termination
• •Responsibility if something goes wrong
• •Intellectual property
• •Confidentiality
• •Dispute resolution

The appropriate terms can vary considerably between industries and business models.

A lawyer familiar with commercial contracts can help ensure that an agreement reflects the way your particular business actually operates.

What should you check in a supplier or service agreement?

Businesses often rely on other businesses for products, technology, professional services or essential operational support.

Before entering an important supplier or service agreement, questions may include:

• •How long are you committing to the arrangement?
• •Can prices change?
• •Are there minimum purchase requirements?
• •What happens if the supplier doesn't deliver?
• •Are service standards clearly defined?
• •Does the agreement automatically renew?
• •How can you terminate it?
• •Who carries the risk if something goes wrong?

Where the supplier or service is important to the operation of your business, understanding these provisions before committing can be particularly valuable.

Do you need a lawyer for a contractor agreement?

Using contractors is common in New Zealand businesses, but the agreement should reflect the actual working relationship.

A contractor agreement may address the work being performed, payment, confidentiality, intellectual property, liability and how the arrangement can be ended.

There can also be an important distinction between an independent contractor and an employee. Simply calling someone a contractor in an agreement does not necessarily determine their legal status.

If the nature of the relationship is uncertain, a lawyer with relevant commercial or employment law experience can help identify the issues that may need to be considered.

Do you need a shareholder or partnership agreement?

When people start a business together, everyone may initially have the same objectives. Circumstances can change.

Questions can arise about:

• •Who owns what?
• •Who makes important decisions?
• •How will the business be funded?
• •How are profits distributed?
• •Can an owner sell their interest?
• •Can new owners join?
• •What happens if someone wants to leave?
• •What happens if the owners disagree?

Depending on the business structure, a shareholders' agreement, partnership agreement or other ownership arrangement may be appropriate.

Getting these issues clear while the owners are aligned can help reduce uncertainty if circumstances change later.

When does your business need an NDA?

A business may need to share confidential or commercially sensitive information with employees, contractors, potential investors, suppliers or other businesses.

A confidentiality agreement or Non-Disclosure Agreement (NDA) can set out what information is confidential, how it may be used and how long confidentiality obligations continue.

Whether an NDA is appropriate - and what it should contain - depends on the information being shared and the circumstances.

Where valuable intellectual property, technology, business plans or other commercially sensitive information is involved, a lawyer with appropriate commercial or intellectual property experience may be useful.

Does your business need Terms and Conditions?

Terms and Conditions can form an important part of the relationship between a business and its customers.

Depending on the business, they may address:

• •Payment
• •Delivery
• •Cancellations
• •Refunds
• •Liability
• •Intellectual property
• •Dispute resolution

The appropriate terms will depend on whether the business sells products or services, deals with consumers or other businesses, operates online and a range of other factors.

New Zealand businesses dealing with consumers may also have obligations under consumer protection legislation. Terms and Conditions cannot simply remove statutory rights or obligations that apply.

A commercial lawyer can help ensure that the terms are appropriate for the particular business and its customers.

What happens if the other party breaches the contract?

A contractual disagreement doesn't necessarily mean that court proceedings are the next step.

The first questions may include what the agreement actually requires, whether a breach has occurred, what rights or remedies the contract provides and whether the issue can be resolved commercially.

Depending on the circumstances, the next steps could involve communication between the parties, negotiation, a formal notice, mediation or another dispute-resolution process. More serious disputes may require a lawyer experienced in commercial disputes or litigation.

Getting legal advice early can sometimes help clarify the available options before the dispute becomes more difficult or expensive to resolve.

When should you speak to a lawyer about a business contract?

There isn't one rule that applies to every contract.

Legal advice may be particularly useful when:

• •The contract involves significant money
• •You are making a long-term commitment
• •You don't fully understand what you are being asked to sign
• •The other party has prepared the agreement
• •A personal guarantee is required
• •Liability or indemnity provisions could expose you or the business to significant risk
• •Intellectual property or confidential information is important
• •You want to terminate an existing contract
• •The parties disagree about what the agreement means
• •You believe the other party has breached the agreement
• •The contract is particularly important to the future of your business

For an important agreement, getting the right advice before signing may also be considerably easier than trying to resolve a problem after the contract has been entered into.

What type of lawyer do you need for a business contract?

That depends on the agreement and the issue you're facing.

A general commercial agreement may be suitable for a commercial or business lawyer, while other contracts may require more specialised expertise.

For example:

• •Employment agreement → Employment lawyer
• •Commercial lease → Commercial property lawyer
• •Shareholder agreement → Corporate or commercial lawyer
• •Intellectual property agreement → Commercial/IP lawyer
• •Business sale and purchase agreement → Corporate or commercial lawyer
• •Contract dispute → Commercial disputes or litigation lawyer

You don't necessarily need to know the exact legal speciality before asking for help. What's important is finding a lawyer with experience relevant to the particular contract and issue your business is dealing with.

How can Get A Lawyer help?

Finding a lawyer isn't just about finding someone who practises business law. Different commercial matters can require different experience.

Tell us briefly about the contract or business issue you need help with. Get A Lawyer can identify the legal help you need and match your enquiry with trusted New Zealand law firms suited to your particular matter and ready to help - free to use and with no obligation to proceed.