Small Business Saturday Blog

The Importance of Written Legal Documents

Thursday, March 26 at 10:21Start-Up Support

It is surprising how many people do business without having a formal written contract. While a handshake and a promise can go a long way, a simple written legal agreement can save you time, money and relationships.

A couple of years ago, a website designer friend of mine agreed to build a website for a mutual friend. The design, time-scale and price were agreed on a handshake and no written legal agreement was signed. Our mutual friend kept changing his mind about the design and eventually the job, which was supposed to take one month, ran to three and my friend realised he had spent more time than the job was worth and wrote the project off. Our mutual friend refused to pay for the work done and because there was no written agreement my friend had no redress. Unsurprisingly, they are no longer friends.

Excuses for not having a written contract

One of the most common excuses for not having a written legal agreement, as in the above example, is that the other party is a friend or just seems like ‘a nice guy’. In the majority of situations things will go smoothly but it just takes one misunderstanding for things to go wrong. Although oral agreements can be binding and enforceable, they can be difficult to prove. That’s why it’s important to have an agreement in writing.

Lawyers don’t have to be involved

Having a written legal agreement ensures that both parties are on the same page. Many people believe that it’s expensive to draw up a legal document and that lawyers have to be involved. Small businesses don’t need to be crippled by legal fees in order to trade on a sound legal basis. The truth is that in many situations a standard legal contract purchased on the internet will do the job without having to see a solicitor.

Even a simple agreement written by yourself is better than no agreement at all.

A written contract not only protects you if something goes wrong but it helps things from going wrong in the first place by clarifying expectations and preventing misunderstandings.

Price and payment

What should the contract include?

One of the most important clauses in a contract is the price for the goods or services being provided. Nearly all contract disputes involve money, so price and payment should be clearly defined. There may be other things to consider in addition to the contract price. These could include:

Is part of the price to be paid up front?
What happens is payment is not made on time?
Is interest to be charged on late payments?
Is there a cancellation fee if the client cancels after work has begun?

Description and scope of the work

The contract should clearly state the description and scope of the work to be provided. Many contracts leave this vague to allow flexibility but this can lead to misunderstanings, so be as precise as possible about the job.

Terminating the agreement

Another important clause in any written agreement is a termination clause which sets out the circumstances in which the agreement can be terminated and what should happen in the event of termination. So if one party breaches any of the terms and conditions of the contract, the agreement provides that the other party will be paid for any work done and expenses incurred up to the date of termination.

How do I make the contract legally binding?

We receive many enquiries at Clickdocs from customers asking how they make their agreements legally binding and do they need a solicitor to do this. The simple answer is that once the agreement is signed by the parties they are legally bound by it. If one party breaks the agreement, the other party has a legal right to enforce what was originally agreed. This includes all the terms and conditions of the contract.



About the author: Sarah Gill is a legal blogger for Clickdocs.co.uk, one of the UK’s leading providers of online legal templates.  Clickdocs offers a wide range of legal documents for small businesses including: company formation, standard terms and conditions, employment contracts and policies and more.

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