Starting a New Business? 5 Reasons why Written Agreements are so Important

In “Starting a Startup? For Entrepreneurs and their Advisers”, we discuss a number of tips for embarking on the adventure of starting a new business.  An exciting time for those involved however, common views of the “boring” or perceived “expensive legalities” often means that written contracts and agreements are left to be done another day, and often aren’t done at all.

However, a key way to protect your business and reduce risk (and lots personal cost in dispute down the track) is to embrace written agreements, for the simple fact of ensuring that all parties to an agreement are certain about their obligations and responsibilities, and the business can thrive from this foundation.

Whatever the relationship type, whether it be with a new business partner, client or employee, reducing risk and having a roadmap for when something goes wrong is crucial to effectively managing your business.

Some of the important inclusions in any contract are:

  • Who are the parties to the contract
  • How long the contract will last and when it will end
  • Who will perform what task and for how long, where and to what standard
  • Payment terms, if applicable
  • Data protections
  • Resolving problems

We discuss further below, 5 reasons why such contracts are so important:

  1. Record of a relationship

A contract is a visual representation of a relationship between two parties.

When new business owners enter into a written agreement, their rights and obligations are clearly defined in the document. Having clear and concise terms that both you and your business partner(s), client or employee agree will help shape the expectations and guide the performance of duties.

A contract ensures that both parties understand what the expectations are, and what both of you will be contributing at the commencement of your working relationship and receiving both during and at the end of your working relationship.

The risk with any verbal agreement is ambiguity and arguments about whether any agreement was formed at all. Verbal agreements rely on the good faith of all parties and where a dispute arises, these can be difficult to prove in court.

  1. Payment Terms

Not only important for client and employee-based agreements but also for between business partners. A shareholders agreement, for example, records how profits are to be distributed, financing arrangements for the company, the process for valuing the business and the procedure should the business relationship come to an end.

  1. Prevents disputes and reduces risk

In the case of any disagreement, the parties are able to refer to what was agreed on in the initial terms of the agreement. It holds both parties accountable to the terms they set at the beginning of the relationship and provides the ability to enforce those terms.

Contracts often also include a procedure requiring the parties to engage in alternative dispute resolution (for example, mediation) in the case of a disagreement before court proceedings can be commenced.

  1. Decision making

As a written record of what parties have agreed, written agreements may in turn help business owners to make quick decisions and provide guidance on those issues, therefore, avoiding dispute at all. They also operate to maintain compliance across the business. Business partners often begin with a shared vision of their new business however, these views can often change over time.

  1. Confidentiality

One of the ultimate benefits of having a contract or agreement in place is for confidentiality. As part of the agreement, the parties may be bound to protect any such confidential or sensitive information that they may have been privy too. This can extend to real property, assets of the business and intellectual property. For example, client lists and data or technology you’ve developed.

Whether a start-up or an established business, contracts are relevant and important to businesses of all sizes.  At Burke & Associates Lawyers we empower our clients so that choices created are informed, and successful outcomes achieved. Every time.

Contact one of our experienced Commercial Lawyers today for assistance.


Insight written by Rosy Dean (nee Rosy Roberts)


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