Contract Signing Tips 101

 

2 May 2017
Posted by Jennifer Tutty

Have you been asked to sign a business contract?  Not quite sure what it really means, but keen not to delay a good commercial opportunity?

Lawyers are infamous for their constant warning “don’t sign anything”, but there’s good reason to exercise caution in any contractual situation.

Here are some critical tips from Studio Legal to consider before signing the dotted line.

Take a deep breath

Sometimes a deal might be pretty damn average but at the same time a really exciting prospect especially for new or emerging businesses.  It is prudent to stop, put the excitement aside and take a good hard look at whether this deal is the right deal for you.  Things to consider include:

(a) How long has the other side been in business? What’s their reputation like?

(b) What industry connections can they bring to the table?

(c) Are you able to get a referral from someone else who has worked with them?

You may have confidence that even though the deal is not that great, the opportunities that will flow from working with the other side will benefit you in the long term.  If on the other hand the deal sucks and you are not confident of the other side’s reputation, then we highly recommend you hold off and wait for a deal that feels right for you!  If you work hard and keep true to yourself and your brand, you will get another opportunity and it will be an even better one!

Check the other side is legit!

It is super important to clearly understand who you are contracting with.  It is a sole trader, a partnership, a company, a trust, a joint venture or some other legal entity?

Make sure you get their full name, their ABN and current address as a minimum and that these details are clearly listed in the contract.  If you are contracting with a company, you should get the names and addresses of the directors.  If there is a problem down the track and these details are listed in the contract, there can be no doubt who you can make a claim against.

You can check out whether their ABN is active by searching the Australian Business Register and you can search to check whether a company or business is registered with ASIC here. If an ABN, business name or company is listed as ‘deregistered/ cancelled/ under administration’, then you should ask them why, and reconsider signing the contract.

Understand what you’re signing

If you do not understand what the contract means, don’t sign it. Ask around for advice from industry friends or mentors, or seek legal advice.  Worst case, you can even ask the other side to sit you down and go through each term with you in a meeting.

If the other side tries to bully you into signing, makes you feel bad for seeking legal advice or says things like ‘the contract is non-negotiable’, this should ring alarm bells for you.  If someone is pressuring you into signing a contract without understanding it, then you have to question their motives and whether they are the right fit for a business relationship.

How long does the contract last for?

There are many ways a contract term will be described (for example, contracts may have fixed terms, be ‘ongoing’ with a termination right or have automatic ‘roll overs’ for further periods unless terminated).   Make sure you understand how long your contract lasts for, and if it’s not clear, you are perfectly entitled to ask that this be spelt out in the contract.

Does the contract restrict you from doing anything?

Some contracts expect you to do something on an exclusive basis. You need to fully understand these obligations and make sure:

(a) You can even agree to this (i.e. are you already providing the goods and/or services to third parties);

(b) You are being adequately remunerated for giving up the right to provide these goods and/or services to third parties;

(c) You will not need to provide the goods and/or services to third parties in the future.

Make sure you watch for ‘restraint of trade’ style clauses which may restrict you doing things during or after the contract.

Make sure the contract is correctly signed!

You can check out our previous blog on signing contracts to make sure both parties sign correctly so that the terms can be enforced if necessary.

Do you have a contract to sign and need legal advice? Please get in touch with us on 03 9521 2128 or email hello@studiolegal.com.au. We advise on and negotiate business contracts.

DISCLAIMER

The information in this article is of a general nature. It does not constitute formal legal advice, and should not be relied on as such. Please see the full disclaimer in our website terms. Please contact Studio Legal if you are seeking advice about a specific legal matter.