5 Tips to Make Sure Your Contracts Protect Your Business
Do your contracts protect your business?
As a business owner, your main goals are to ensure that your company maintains a solid reputation and maximises profits.
To do this, companies need to make sure that they protect themselves when carrying out business transactions. Solid legal agreements are the most effective way forward and help you to avoid potential disasters.
You may think that negotiating and drafting a contract is time-consuming, expensive and involves too much admin and paperwork, the pitfalls of not having written agreements in place (or having agreements which are poorly drafted or not appropriate) can be very costly.
We understand that navigating contracts and commercial law issues can be a hassle. At Gerrish Legal, we want to make your life easier so that you can concentrate on what you do best – running your company! We have therefore put our legal knowledge and experience to good use to share with you the 5 top tricks to make sure that your agreements protect your business.
1. What’s in a Name?
You need to ensure that the identity of the parties is properly defined at the start of the contract.
If you can’t identify the parties to a contract, how can you know who can enforce the contract? Companies and LLP’s can be identified by their full legal name, registered office address, company registration number and country of incorporation, and for sole traders you need to know their trading name, the name of the individual involved and their current address.
Make sure you know who you are contracting with. This might sound obvious, but if you contract with an individual who owns a company are you contracting with the company, the individual owner, or both? These choices will have substantial legal consequences and can alter the arrangement of your contracts. It is also really important to check who will be signing the contract, since if the person signing the agreement does not have authority to do so, then this could mean that the contract is not valid and you open yourself up to exposure if something goes wrong.
2. Get the Content Right
We have often heard from clients that as long as a contract is in place, anything will do! Unfortunately, this is a key pitfall which can be very costly for your business, whether you are selling or licensing your technology or seeking help from an external contractor. No commercial transaction is the same. For example, if you are buying a new car, it is very unlikely you would use a flat rental agreement to cover the sale – in business, it is the same principle!
It is therefore vital that your contracts clearly set out what you have agreed to do, along with the rights and obligations of each party.
Why is this important? Failure to perform contractual obligations is a breach of contract. If you are the victim of a breach of contract you will be entitled to certain remedies - damages can be awarded, money and goods can be returned or the contract can be cancelled.
However, to ensure you can protect your company from breaches of contract you must ensure the contents of your agreements are clearly set out and are free of loopholes. Missing out particular interests or failing to cover risks can defeat the entire point of entering into a signed agreement in the first place!
3. Be GDPR-Compliant
The General Data Protection Regulation (GDPR) came into force across the EU on 25th May 2018. The GDPR also has international reach and applies to non-EU companies if they are processing personal data belonging to EU citizens or are supplying goods or services to the EU. The GDPR will also continue to apply in the UK after Brexit, so there are no excuses to avoid compliance!
Personal data processing forms part of all company activities and sharing personal data between companies in the course of business is commonplace. Unsurprisingly, special rules apply to contracts where personal data is exchanged between the contracting parties. In accordance with these rules, you need to set out the role of each party as a data controller (the owner of the data) or a data processor (which processes data on the controller’s behalf). The GDPR says that in these situations, written clauses or contracts are compulsory and that certain specific terms must be included by law.
Since the GDPR, Data Protection Authorities (such as the ICO in the UK or the CNIL in France) can judge if your business has been compliant with the new rules, and issue penalties if not. If you cannot show you have the right measures in place, or at least that you are making the effort to protect personal data you hold on EU citizens, your company will face fines and an extremely negative impact on your reputation.
4. Protect your Intellectual Property and Business Secrets
Misconceptions around intellectual property (“IP”) can lead to serious legal problems. Some business owners might not realise they have intellectual property, or might consider protection to be too expensive, but these misunderstandings can result in serious damage to your company’s budget.
It is important that you understand how to protect your assets and brand image that you have worked so hard to develop. You need to be cautious about sharing your IP allowing others to use your logo or company name. When you are using technology created by others, it is also important to make sure that you are protected, by having proper licensing terms in place and indemnities from the other party so that your business is financially protected should anything go wrong.
Properly drafted Confidentiality, Publicity and IP clauses in your contracts enable you to protect your company’s brand image and assets, and against any third-party claims which could arise when you are using another company’s IP.
5. Which Law applies?
So now you have carefully outlined the parties, the content and have the GDPR and IP issues covered off. But how will these clauses be interpreted?
The rules surrounding which law applies to your contract are very complicated and differ depending on the type of contract in question (B-to-B or B-to-C). At least within the EU, parties are free to choose any governing law regardless of their own location. It is even more important to decide on the governing law and which courts apply if you carry out international business. Do you know the most beneficial jurisdiction for your contract?
It is usually practical to make sure that the governing law and applicable court is the same as your contracting office. This makes life easier, as you don’t then have to instruct lawyers abroad and pay for contracts and relevant documents to be translated. Sometimes, when both parties are from different countries with different languages, it makes sense to have a neutral place, such as England & Wales, where the business language is English and the judges and court service are reliable.
Failure to include a governing law or jurisdiction clause in your contracts when they are drafted means that you might be faced with surprising results as to where a dispute will be heard, and time and money can be wasted arguing over this point.
The best way to succeed
Following these 5 top tips will help you to use contracts in the most effective way to protect your business and ensure its success.
The law in these areas can be confusing, so the biggest tip of all is to choose a legal partner who can help you.
The rights legal assistance can help you to understand your business quickly, prepare the contracts you will need with your customers, clients and suppliers, and they can help you respond to other contracts that your business partners want you to sign.
Trying to handle this on your own can be daunting, so getting the right advice from the start means you can avoid any surprises down the road and make sure your business will succeed.