Business startup

Written agreements: Things to keep in mind

- December 12, 2012 3 MIN READ

Every business owner will likely be party to various written agreements in the course of running their business. Here are some important points to consider before signing the dotted line.

I am a big believer of ‘getting it in writing’ when you are doing any sort of business with someone else; of having some form of paper trail of your dealings. Often this will be in the nature of a formal agreement. 

Common written agreements might include:

  • Confidentiality agreements
  • Terms of service agreements
  • Rental agreements
  • Licensing and/or distribution agreements
  • Contractor/sub-contractor agreements
  • Employment agreements
  • Non-compete agreements 

And, in some cases, you might find several of the above drafted into a single agreement. 

Understanding agreements

If you don’t understand a written agreement you are given by someone else – don’t sign it until you do! It can be very difficult to undo a contract once it has been signed, and close to impossible to undo it just because you didn’t understand what you were signing. It’s your responsibility to make sure you do understand – or seek appropriate advice if you don’t. 

Using template agreements

A template agreement is a stock-standard written agreement that is freely available, and which you can use for a specific purpose. Whether a template agreement is sufficient for your needs will likely depend, in my opinion, on:

a)     Your level of understanding as to the drafting of legal documents, and reviewing/understanding the same; and

b)     The nature of the agreement. 

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For example, a generic confidentiality agreement – where the purpose is to allow the safe disclosure of information from one party to another where that other party agrees to keep it a secret – will probably be ok. 

An example of a template I am comfortable referring to others who have intellectual property related information to disclose and be kept confidential is found here. (Even then, when I draft a confidentiality agreement for a client it’s a little more robust than these sorts of templates.) However, I would not be comfortable in suggesting people use a template for any sort of licensing and/or distribution agreement. 

A lot of template websites originate outside of Australia and therefore unless you are familiar with the rights of each party to this sort of agreement it is difficult to know if a non-Australian template is suitable to use in your Australian business. 

These sorts of agreements can also be quite lengthy and cover off many topics – including confidentiality, intellectual property ownership and use, expected sales quotas, marketing and promotional requirements, exclusivity versus non-exclusivity, licensing fees or royalties, quality assurances, premise inspections, breaches of contract, termination of contract etc. 

I would always suggest professional assistance is sought if considering these sorts of agreements to be certain that your rights are protected and the agreement is lawful. 

Enforceability of agreements

Generally speaking, an agreement signed by two parties will be legally binding on those parties. So, assuming the agreement is lawful to begin with it should be enforceable. This is not to say it’s easy to enforce an agreement, especially if a party to the agreement is outside of Australia. 

It’s important to include clauses in any agreement that discusses where and how breaches or disputes will be decided – otherwise you could see yourself having to fly half way around the world to settle a dispute over your contract. 

It can also be costly to have an agreement enforced if the parties do have a dispute. Ensuring the agreement is as water-tight as possible will likely limit your need to enforce an agreement in court, or – if you do need to take it to court – will ensure the best chance of success. 

Cost of agreement preparation

How long is a piece of string? The cost to have an agreement drafted for you will vary depending on many factors:

a)     What type of agreement is involved? A basic confidentiality agreement will likely cost less than a complicated licensing agreement or business sale agreement, for example;

b)     Who you engage to draft it for you? Some companies will charge flat rates based on the type agreement, some may charge by the hour;

c)      How organised you are in providing the information that likely needed for the written agreement.  

So remember: ‘getting it in writing’ is essential, but it’s important to be certain what is written down gets the results you want. If at any point you’re unsure, seek professional advice.  

What’s your experience of using written agreements?