All the answers to your unique business lifestage questions
All too often small business owners enter into agreements with friends, family and business associates without consulting a lawyer.
This frequently stems from a desire to save costs. However, according to Olga Meshoe, a senior consultant at Transcend Corporate Advisors, this type of contract can end up costing the business owner far more than the initial legal fee would have.
Get professional advice
There is an assortment of contracts that the average business owner will have to conclude, such as the lease of the business premises, employment contracts and finance agreements.
Few SME owners have sufficient knowledge or experience to negotiate these agreements without some professional guidance and should always seek advice before signing any agreement.
By signing a contract, a person signifies an intention to be bound by the contents of the contract, so it’s advisable that it be looked over by a lawyer before either party sign on the dotted line.
What is a contract?
A contract is an agreement entered into by two or more parties with the serious intention of creating a legal obligation.
The function of contract law is to provide a legal framework within which persons can transact business and exchange resources, secure in the knowledge that the law will uphold their agreements and, if necessary, enforce them.
Is the contract legally binding?
For a contract to be considered valid and binding in South Africa, the following requirements must be met:
- There must be consensus between the contracting parties.
- The parties must have the capacity to contract.
- The necessary formalities must be observed.
- The agreement must be legal.
- The contractual obligations must be possible.
- The content of the agreement must be clear.
Characteristics of a contract
A contract has certain characteristic features:
- It is a juristic act. The law attaches the consequences intended by the parties.
- It is necessarily bilateral or even multilateral; a contract cannot be unilateral.
- It entails promises or undertakings, on one or both sides, to make certain performances: that is, to give something; to do something; or to refrain from doing something. Alternatively, it may be a warranty that a certain state of affairs exists.
- It usually entails reciprocity, in that one party's performance is promised in exchange for the performance of the other party.
Contracts and the law
Contracting parties face the additional challenge of having to comply with South Africa’s changing legal framework. For instance they need to be mindful of the provisions of the Consumer Protection Act.
The Act has introduced new obligations on contracting parties, including:
- the duty to use plain and simple language in contract;
- to point out and explain the onerous terms of contracts and clauses exempting liability; and
- applies to individual consumers and business with a low turnover.