Even the smallest of businesses enter into contracts virtually every day. Contracts with customers, with vendors, potential business partners, online contracts. Small companies are often required to use the standard contract documents presented by larger counterparties. But there are a few form contracts that most businesses should have that were designed just for them.
Customer contracts
If you enter into contracts with your customers, you should have your own form customer contract. Although large companies will usually insist on using their standard contracts, having your own form contract will help make sure you have a solid contract with all your other customers.
Every business is unique, and having your own form contract ensures that your customer contracts accurately describe your products or services, your billing practices, and other aspects of your customer relationships. Generic contracts usually don’t reflect your business practices accurately.
Also, using your own form contract will help ensure you get paid, since there are a few contract provisions that can help, as I describe in my post and presentation Getting Paid.
Nondisclosure agreement
If you provide sensitive information about your company to someone else, whether it be a potential vendor, a prospect, a potential business partner, or a potential investor, you should be careful to make sure it’s protected from unauthorized disclosure and use.
One way to protect your information is through a nondisclosure agreement, sometimes called a confidentiality agreement. Nondisclosure agreements provide contractual protection against disclosure of your information beyond what you authorize. They also prohibit the recipient of your information from stealing it or using it for their own purposes.
This is especially important if you are disclosing information that constitutes a trade secret, since disclosing trade secrets without the protection of a nondisclosure agreement could destroy their status as trade secrets. So, you should never disclose a trade secret unless it’s protected by a nondisclosure agreement.
Online terms
If you have a website, you should consider developing online terms that are appropriate for your website. If you conduct such activities through your website as buying or selling goods or services, allowing people to post information to your website, or collecting user data to sell to advertisers, you definitely need online terms and conditions that are appropriate to your operations. You should also make sure to present the terms to your website users in such a way that legally enforceable contracts are created.
Standard terms and conditions of purchase and sale
If you enter into contracts using quotations, purchase orders, email, or telephone calls, you should use standard terms and conditions. When you do business without actually signing contracts, you need to protect yourself against disadvantageous contract terms finding their way into your agreements.
For example, let’s say you submit a purchase order via email for ten widgets at one thousand dollars each. The vendor acknowledges your order and agrees to promptly ship the widgets. But the vendor also attaches its standard terms and conditions, which have a number of clauses that are bad for you, including a disclaimer of warranty. If the widgets turn out to be defective, you probably won’t have a remedy because the vendor used its standard terms and conditions and you didn’t.
The law dealing with this situation is complicated (see my post about the battle of the forms for an overview), but the solution it simple: you should put your own terms and conditions into play to combat the standard terms of companies you do business with. If you do this, you’ll have a fighting chance to have decent contract terms. If you don’t, you could find yourself in bad shape if there’s a dispute. In addition to standard terms and conditions of purchase, you should also have standard terms and conditions of sale, to deal with situations when you sell products or services without signing contracts with your customers.
Do you have your own form customer contract, nondisclosure agreement, online terms, and terms and conditions of purchase and sale? If not, you’re unnecessarily operating at a contractual disadvantage.