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Business contract template

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    • 1. Introduction

      As an entrepreneur it is crucial to fully understand and appreciate the implications and provisions of contracts, and as your business
      grows so should your knowledge of contracts.

      A valid contract not only provides a basis for the start of a new business relationship but also provides a degree of protection for
      the parties involved, which ensures that there is a proper legal channel to follow in the event of contractual disputes. Valid written
      contracts are better enforced than oral agreements.

      A business contract sets out the ground rules for entrepreneurs to be cognisant of when doing business. The contract should provide
      clear terms and clauses regarding what is expected of each party and what the consequences are in the event of the business
      relationship falling apart.
      ___________________________________________________________
      Hi, I’m Kailash Pillay, an attorney from the city of Johannesburg. My passion for the law
      stems from a desire to improve upon the lives of the vulnerable who fall prey to a
      corrupt system.
      I studied at the University of Johannesburg where I obtained my Bachelor of Laws
      degree, the starting point to the long journey of becoming a legal practitioner.
      This profession has taught me to persevere through the complexities of the law and to
      continually develop my skills as a legal professional.



Best Free Business Agreements 2020


    • 2. A brief background on the types of businesses

      • Choosing the right type of business is one of the first major decisions that an entrepreneur will make. It is important to choose
        the right legal structure and business ownership structure for your business. The different types of businesses have different benefits,
        responsibilities and functions.

        2.1 Sole Proprietorship:
        This involves a single founder who owns and runs the business. It is the simplest form of business entity as the
        business is not separate from the owner.

        2.2 Partnership:
        A partnership entails two or more people who own the business together. The partners will share in both the assets
        and liabilities of the partnership.

        2.3 Proprietary limited company:
        Also known as a private company, this form of business is founded and managed by one director. A private company is
        treated as a separate legal entity and the owners thereof are the shareholders.

        2.4 Public company:
        This is a form of business that issues securities through an Initial Public Offering (IPO) and trades its stock on at least
        one stock exchange. Shareholders of a public company can be anyone who purchases the stock.

        2.5 Franchise:
        This involves an owner of a business licensing their business to a third party. The third party then has the right to operate
        the business or distribute the goods and/or services using the business’s name and systems for a certain amount of
        money.

        2.6 Personal liability company:
        This form of business can be held jointly by both current and previous directors. The directors are held responsible for all
        liabilities incurred during their position as director.

        2.7 Non-profit company:
        These companies are created to serve a public benefit purpose. The income thereof can only be distributed to the
        founders/members/directors for reasonable compensation for their services. At least three founders must complete and
        sign the Memorandum of Incorporation (MOI).

        2.8 State owned enterprise:
        This type of company is formed by government through legal
        means in order to partake in activities of a commercial nature.

  • 3. The types of business contracts

    • Contracts create legal rights and duties between two or more parties.

      The types of contracts that entrepreneurs will enter into on a daily basis during the course of running their business are of vital
      importance for legal purposes. These contracts have to be in keeping with the law to ensure its validity.

      Below are certain contracts that an entrepreneur will typically have to enter into at the beginning stages of setting up their business.

      3.1 A Memorandum of Incorporation – this is the constitutional document of a company which sets out the rights, duties and
      responsibilities of shareholders, directors and others within the company.

      3.2 A shareholders agreement – this contract is entered into should the entrepreneur become an owner of a business.
      The contract describes how the business should be operated and outlines the shareholders’ rights and responsibilities.

      3.3 Letters of appointment and employment contracts – these types of contracts are required should the entrepreneur take
      on employees for the business.

      3.4 A lease agreement – this is for the premises where the
      business will operate from.

      3.5 Insurance agreement – this is a contract under which the insurer accepts significant insurance risk from the insured by
      agreeing to compensate the insured if a specified uncertain future event adversely affects the insured. This agreement is
      essential for an entrepreneur to possess.

      3.6 Non-disclosure agreements – this serves to protect the
      proprietary information of the business.

      3.7 Standard terms and conditions with suppliers or service providers.

  • 4. The essential elements of a contract

    • In order for a contract to be considered legally valid and binding in South Africa the following requirements must be met:

      4.1 consensus – there must be an agreement between the parties on all material aspects of the contract;

      4.2 capacity – the parties must be capable of concluding a contract;

      4.3 formalities – the contract usually has a certain form which needs to be observed;

      4.4 legality – the contract must be lawful and not against public policy;

      4.5 possibility – the parties must be able to perform the obligations in terms of the contract;

      4.6 certainty – the contract must have a definite content in order for the obligations therein to be enforced. Contracts that are
      uncertain are vague and will not be upheld by a court.

  • 5. Illegal contracts that are void

    • Contracts may be void for illegality for a number of reasons. The overarching consideration is whether the contract is against public
      interest. The specific illegality of a contract may be recognised at common law or in statute, or simply with reference to certain moral
      and constitutional values.

      5.1 Public Interest:
      In most instances a contract is illegal because it is either contrary to good morals or it is contrary to public policy. This
      relates to society’s view of morality, and in both instances, the contract will be unenforceable in law.

      Recognised public interests include:
      • voluntarily concluded contracts should be complied with and enforced (sanctity of contracts);

      • simple justice between individuals should be recognised;

      • parties to a contract should have equal bargaining power;

      • administration of justice should not be defeated or obstructed;

      • the safety of the state should be preserved;

      • the public service should function properly;

      • the full exercise of a person’s legal rights should not be interfered with.

      5.2 The conclusion, performance and object of the contract must be lawful
      Contracts may be void or voidable because the mere conclusion of the contract is contrary to a statutory provision,
      good morals, or public policy.
      Specific examples of contracts that are void:
      • the terms of the contract are impossible to perform or too vague to understand;
      • fraud (false representation of facts) has been committed.

      Specific examples of contracts that are voidable:
      • a party was coerced or threatened by the other party into signing the contract;
      • one of the parties breaches the terms of the contract.

  • 6. Forms of breach of contract

    • The parties to a contract must respect their agreement and perform all the obligations imposed under the contract. In the event
      that either party, by an act or omission and without lawful excuse, fails in any way to honour his/her contractual obligations, he/she
      commits a breach of contract.
      6.1 The table below provides a brief overview of the various forms of breach.



      Form of breach

      Committed by

      Relates to

      How is it committed

      Mora debitoris (debtor is culpable)

       

      debtor

      Time for performance

      Debtor fails to perform on time

      Mora creditoris (creditor is

      culpable) 

       

      creditor

      Time for performance

      Creditor fails to cooperate on time

      Positive malperformance

       

      debtor

      Content of performance

      Debtor performs badly

      Repudiation

      Either party

      Intention to honour the contract

      Party shows intention to be bound by the contract

       

      Rendering performance impossible

      Either party

      Possibility of performance

      Party makes performance under the contract impossible




  • 7. Remedies for breach of contract

    • When a party to a contract is in breach thereof, the innocent party must make an election as to whether he/she wishes to cancel or
      enforce the contract.

      7.1 The table below provides an overview of the remedies arising from breach of contract.

      Innocent party’s options

       

      Remedy

      Circumstances availing the remedy

      Additional remedies

      Termination of the contract

      Cancellation

      Contract provides for cancellation

       

      -    Damages

      -    Interest

      Enforcement of the contract

      -  Specific performance including payment

       

      -  Interdict

      Available in all cases of breach subject to the court’s discretion.

       

      Available in the case of threatened/ reasonably perceived breach.

       

      -    Damages

      - Interest

      Claim for money

      -  Damages

       

       

       

       

      -    Interest

       

       

       

       

       

      -        Penalties

      The innocent party suffered actual patrimonial damage.

       

      Provided for in the contract/ a liquidated debt has become due and payable.

       

      Penalty clause in the contract.

       



    • 8. Dispute resolution

      • 8.1 Contractual disputes are usually determined in the following courts:
        • Small claims court for disputes with a value up to R 20 000. 00;
        • Magistrates courts for disputes with a value below R 400 000. 00;
        • High court for disputes with a value of R 400 000. 00 and above.

        8.2 Alternative dispute resolution:
        South African courts generally decline to hear a dispute where the contracting parties have expressly agreed to
        arbitration, this ensures that the parties’ agreement is given effect to.

        It is highly recommended that the parties include an alternative dispute resolution clause in their contract.

        Example
        “If any dispute arises out of or in connection with this Contract, or
        related thereto, whether directly or indirectly, the parties must refer
        the dispute for resolution firstly by way of negotiation, and failing
        which, by way of mediation, and failing which, by way of
        arbitration.”

    • 9. Conclusion

      • It is good business practice to have valid written contracts whenever it is necessitated. This will provide a legal framework in
        which people can do business with the secure knowledge that their rights will be maintained, and if necessary, enforced.

        A contract forms the basis of private initiative and it regulates the standard for fair and honest transactions. The best way to protect
        your business interests is to rely on a well-drafted contract which details your legally enforceable rights and obligations