Setting up deals with other businesses is a great way to gain services that will benefit your company, or to offer your customers something that you wouldn’t be able to deliver on your own. However, any deals that you make should be given careful consideration to make sure that they’re not going to come back to bite you at some point in the future.
We wanted to get some expert guidance on the legal side of business deals so that you can be fully prepared next time you’re thinking about them. Faris Dean, a consultant solicitor with Richard Nelson LLP and chairman of ACCA’s Global Forum on Business Law, wrote the following:
This article sets out some of the considerations businesses should consider when entering into B2B commercial contracts.
Before addressing the legal points to consider, there are some practical steps which a business may want to keep in mind. These include carrying out some due diligence on the other party. This could be a credit check and a review of the company accounts (if available) to establish whether the other party is credit worthy. A business may have a solid legal contract in place but if the other party has no cash then this can pose a problem – we often hear about businesses being caught up in scams.
Some practical steps to reduce the risk of this happening are to check the other party’s website, company and other regulatory registration details (if any), physical existence, etc. These are common sense steps to take before going ahead with a commercial transaction.
Once a business is satisfied with its due diligence, the next thing to consider is the commercial contract that is in place. A contract may be verbal or written, so even if no written contract exists there may well be a verbal contract in place. We would always advise a business to have a written contract in place to provide a degree of certainty and enforceability.
The question then arises as to which written terms should apply. The business and the other party may each have their standard contractual terms. There are rules as to which of these terms will apply, but these depend on the negotiations and exchange of documents which took place. It is important to make sure this step is considered, otherwise a business may be bound by the other party’s written terms, even though this was not its intention. Once a business knows which written terms it intends to contract under, it will have to consider the actual terms.
The contractual terms should deal with the core issues such as what goods or services are being provided, time frame for delivery, price and other obligations and liabilities. Other provisions which a business may want to look out for are anything regarding warranties or indemnities and the events of default. In international contracts, a business should also consider the law which should govern the contract and which courts should have jurisdiction in the event of a dispute. Another provision which may be included in a contract is the resolution of disputes by means other than the courts (e.g. mediation or arbitration). In some contracts entered into with Gulf State, such a term is mandatory under local law otherwise the contract is invalid.
Since each business and commercial transaction is unique, the same is reflected in the contracts and for that reason it is sensible to obtain commercial legal advice at some stage before going ahead.
Company Check helps firms carry out due diligence prior to finalising business deals – check out our membership plans for full details.