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As a business owner, contracts are inevitable, and they are one of the effective ways of protecting your business interests. A contract is a verbal or written agreement between two or more parties. There are different types of contracts that a business owner can use to protect their business interest. contracts can be oral or written but it is advisable to have a written contract to ensure proper enforcement of the terms of the contract.
Basic types of business contracts
1. Sales contracts
2. Employment contract
3. Partnership agreement
4. Lease agreement
5. Service agreement
6. Non-disclosure agreement
7. Franchise agreement
8. Joint venture agreement
9. Licensing agreement etc
| Type of Contract | When do you need this Contract |
| Sales Contract | This is used for transactions involving sale of assets, stock, goods and services etc. It contains terms that guide the relationship between parties. |
| Employment agreement | This is used when engaging an employee. It helps protect the parties legally. |
| Partnership agreement | This is an agreement entered into when partnering with others for a set objective. It is also used when registering a partnership business to help define the partnership. |
| Lease agreement | This a legal document used when leasing a property or item. |
| Service agreement | This is entered with service providers by business owners. It helps define the relationship between the business owner and service provider. |
| Non-disclosure agreement | This is used where either party has confidential information to share, and which is preferably not shared outside the parties to the contract. |
| Franchise agreement | This is a contract under which the franchisor grants the franchisee the right to operate a business, offer, sell, or distribute goods or services identified or associated with the franchisor’s trademark. This applies in situations that involve intellectual property. |
| Joint venture agreement | This is a contract that is required when two or more parties seek to carry out a particular task involving the development of a single enterprise or project. |
| Licensing agreement | This agreement is used when one party (the licensee) wants to use and/or earn revenue from the property of the owner (the licensor). The property here is usually intellectual. |
Importance of Using Contracts for your Business
- Contracts help you to guarantee a standard business procedure and give clarity of your requirements.
- Contracts assist in achieving the desired goals and serve as proof for all the activities to be undertaken in the future.
- Contracts provide you with precise knowledge of the services offered by the third party and serve as legitimate proof of all the recordings.
- Contracts come with an NDA (Non-disclosure agreement) that protects and secures the concerned parties’ confidential information.
- Drafting a contract helps you avoid misunderstandings that can lead to conflicts between the parties.
- Contracts help you take strict legal action against the people breaching the contract agreement.
- Contracts also help safeguard the employees from false promises and expectations that the third party may lay upon them.
What you Should Include in a Contract
- Offer: The first essential element of a contract is an offer. An offer is a statement made by one party that indicates their willingness to enter a contract with another party.
- Parties: contracts are made between individuals or legal entities. A business with legal personality such as a company, can enter a contract in its name. For a contract to be valid, parties must be of legal age, mentally capable and not under undue influence.
- Duration: this is the period wherein the contract is expected to be effective. Where a duration is not set then either party can terminate the contract when they deem fit.
- Acceptance: Acceptance is the second essential element of a contract. Acceptance is the unconditional agreement to the terms of the offer by the other party.
- Consideration: Consideration is the third essential element of a contract. Consideration is something of value that is exchanged between the parties, such as money, goods, or services. It is the benefit or detriment that each party gives or receives because of the contract.
- Intention to create legal relations: Both parties must intend to create legal relations. This means that they must have a genuine intention to be legally bound by the terms of the contract.
- Capacity: The parties to the contract must have the legal capacity to enter a contract. This means they must be of legal age, mentally sound, and not under duress or undue influence.
- Legality: The contract must be for a legal purpose. Contracts that are illegal, against public policy, or violate the law are void and unenforceable.
- Governing Law: This is a choice of law that parties decide would apply in the event of a dispute. it is advisable that every contract should have a governing law instead of being left to the court or other circumstances.
- Consent: Consent is the final essential element of a contract. It means that the parties must have freely and voluntarily agreed to enter the contract without any form of coercion, misrepresentation, or mistake.
- In addition, a contract must be in writing, clear, and unambiguous. It should also be properly executed and signed by both parties.
Enforcement of Business Contracts
Enforcement of contracts is key to every contract as it helps business owners ensure that their rights and obligations under the contract are protected. In Nigeria, contracts can be enforced through the courts and other dispute-resolution mechanisms.
Contracts must be performed in accordance with their terms, and failure to do so may result in legal action. If one party breaches the contract, the other party may seek remedies such as damages, specific performance, or injunctions to compel the breaching party to perform their obligations.
Business owners can enforce their contracts through the courts by filing a lawsuit against the breaching party. The courts in Nigeria have jurisdiction to hear disputes related to contracts and will adjudicate on the matter in accordance with the law.
In addition, there are alternative dispute resolution mechanisms that business owners can use to enforce their contracts, such as arbitration, mediation, and negotiation. These mechanisms are often faster and less expensive than going through the courts and can be used to resolve disputes more amicably.
It is important for business owners to ensure that their contracts are well-drafted and contain clear provisions for enforcement in the event of a breach. Also, keeping accurate records and documentation of transactions to help support their case in the event of a dispute should not be trivialized.
Overall, the enforcement of contracts is an essential aspect of doing business, and business owners should be aware of their rights and obligations under their contracts to protect their interests and minimize the risk of disputes.
Steps to Resolving Conflicts in Contracts
In resolving conflicts when it comes to contracts, it is advisable that parties explore amicable settlement before proceeding to Court considering the time it takes to go through the court process in Nigeria. There are various steps to resolving conflicts in contracts such as:
- Negotiation – this involves the voluntary coming together of parties in the contract either personally or by their representatives, to discuss their differences and attempt to reach a joint decision or resolution of the conflict.
- Mediation- this involves inviting a neutral and impartial third party called the mediator which the parties’ approach to facilitate the resolution of the dispute by adopting the agreement of the parties.
- Conciliation- this involves a neutral third party called the conciliator who gives an opinion or suggestion to bring the disputing parties to a voluntary settlement of their dispute.
- Arbitration- In this case, parties submit to a third party called an arbitrator or arbitral tribunal for the resolution of their dispute. The decision of the arbitrator or arbitral is binding on the parties and enforceable by the courts.
- Court- parties can decide to go to court to settle any issue in their contract.
Terminating Business Contracts
The termination of contracts for business owners is regulated by various laws in Nigeria. The termination procedures and requirements may vary depending on the type of contract and the industry in which the business operates.
Generally, there are two ways a contract can be terminated which is either by mutual agreement between the parties or by one party exercising its legal right to terminate the contract. In the case of a mutual agreement, the parties must agree to the terms of the termination, including any compensation or damages owed by either party. In the second instance where one party wishes to terminate the contract, there may be specific requirements that must be followed to ensure that the termination is legal and valid. For example, if an employer wishes to terminate an employment contract, they must comply with the provisions of the Nigerian Labour Act, which sets out the procedures for terminating employment contracts, including providing written notice to the employee and paying any outstanding compensation or benefits owed.
If a business owner wishes to terminate a contract with a supplier, customer, or other third-party, they must ensure that they comply with the terms of the contract, including any notice requirements or penalties for early termination. If there is no specific provision in the contract, either party may terminate the contract by giving reasonable notice to the other party.
It is important for business owners to seek legal advice before terminating any contract to ensure that they are complying with all relevant laws and regulations and to minimize the risk of legal disputes or liability.
Conclusion
It is important that as a business owner you use the appropriate contracts for your business and ensure those contracts possess the required elements. Feel free to reach out to us if you need help with drafting and reviewing contracts for your business.