The Importance of Commercial Contracts in Business

Every business is unique in terms of its operations and therefore should have contracts that are both protective and suitable for its line of work.

Start-up businesses, in particular, should pay attention to the kind of contracts they require as those contracts determine how the business is run and how efficiently this is done between the different parties involved. In order for a business to operate securely and transparently, it should always seek to have all critical agreements in writing (and therefore under signed contracts). Although it might not always be cost efficient to draft a contract for each and every process, it is definitely necessary to account for this incurring expense when starting up a business.

Different contracts may be required pertaining to different aspects in a business. A start-up business should consider the following agreements (this is not a closed list as many other contracts could apply):

1. A partnership requires a partnership agreement. It would be unwise to enter into a partnership before each partner is aware of the contribution they have to make (be it capital, services or assets) or what tasks they undertake in the partnership. A partnership agreement does not have to be reduced to writing, but not doing so may leave one or more of the partners in a vulnerable position should conflict and potential litigation arise on a matter.
2. Almost every start-up business that needs an office space will require a Lease agreement (as most start-ups will not commit to purchasing a property immediately). A lease agreement not only secures your premises but will also outline: Rent, Proper use of the premises, maintenance (as the responsibility of the landlord), what happens when there is destruction or damage to property either by forces outside the tenant's control or damage due to the tenant and remedies for breach of the agreement. It is also possible to include an option to purchase.
3. Furthermore, Service Level Agreement or Supplier Agreement contracts may be required if your start-up is in the business of buying and selling or production. As such, you may require a supplier to supply a steady flow of product, conserve consistent pricing, etc. Remedies for breach of the above should always be at the forefront of any business agreement.

There are a variety of contracts which may apply to any business at any given time on any operation. Contracts are not always simple to draft and it is not recommended that one drafts a contract without a proper legal background or legal advice. A badly drafted contract might be deemed void – leaving you or your business in its entirety exposed.  

From the above, it is distinctive that the importance of contracts for small businesses cannot be emphasized enough as it is the only platform from which operational security and transparency can be ensured.

For more information and advice on the essential contracts for your start-up business or small enterprise, contact Du Toit’s Attorneys on 012 742 0100 or 012 643 1882. Alternatively, you can send an email to johan@dutoitsattorneys.co.za or hanja@dutoitsattorneys.co.za