Every business unit, from sole proprietorships to fully-fledged public corporations usually comes into contact with one form of contractual arrangements or the other.
Once another individual or even business assumes a role in the setup, there is usually the need for a type of contractual agreement, usually in order to either establish precedence with regard to the execution of duties or to clearly define a manner in which every aspect of the business is to be carried out.
Contractual relationships come in many forms and types and it’s imperative that ground rules are set prior to the invitation of another party into the business.
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A contract in very simple terms is “an agreement intended to be legally binding and supported by consideration”.
It’s simply “an agreement that legally binds the parties”. This accounts for the reason why an affected party could pursue justice in a court of law if there is enough evidence to prove that there has been a deviation from the pre-arranged terms of the contract.
A contract becomes valid the moment there is an OFFER and an ACCEPTANCE. This implies that once both parties have agreed to pursue a business agenda, a contractual relationship materializes, even if the agreement hasn’t been documented.
This brings to light the expected prerequisites of a contract. There is a need to ensure that:
- There is consensus (or agreement) between the two parties
- Both parties are in the required capacity to execute the deal. By capacity, it implies that neither of them is 1. A minor or infant 2. An alien 3. Drunk or mentally – disordered
- There is consideration, which is the act of giving out goods and services in exchange or money or a promise. Consideration is “the price for which a promise is bought”.
- The contractual arrangement is formal. This relates to the fact that it should be a carefully worded agreement, but not one that is merely “exchanged” without caution with regard to the details.
- It’s legal. An illegal contract is never enforceable in a court of law.
- Intentions are clearly spelt out. Any omission that is later brought up in the course of operations is deemed to be void, since it tends to change pertinent elements in the contract.
Any formal business contract without any of these six elements fails to live up to be description of a contract, and as such becomes voidable.
Once you decide to start a business, or even accept employment in an existing business unit, care must be taken with regard to the minutest detail, lest you are
caught in a whirlwind of legalities you may not be prepared for. Contractual relationships are all around us; it behooves on us to carefully analyze and make prudent decisions when the need be.
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