5 things every startup should look for in a contract
Basic information that should always be present in a contract
By: Entrepreneur Staff | Oct 12, 2011 11:00 am
It is always good business sense for business transactions, especially those involving large amounts, to be sealed by contracts in order to assure all parties’ compliance with the agreement.
In the Philippines, as stated by the Civil Code, people can use any form of contract provided all the essential requisites for its validity are present. These requisites are consent of the contracting parties, certain object (or subject matter of the contract), and cause of contract.
For contracts involving amounts below P500, a verbal contract would suffice; however, for amounts exceeding P500, the law requires written contracts. It is important that a contract is carefully prepared and written because it serves as basis for both parties on the terms and conditions of the contract.
The contents of a contract may vary depending on the extent of the agreement and the requirements of both parties. When preparing it, however, make sure that all the basic information are included in the contract. These are:
Names of the parties. The contract should clearly indicate the official and registered names of both parties. If one party is the client of the other, make sure to include the former’s contact details in order to avoid problems on billing later on. Some companies have a list of accredited suppliers and regular clients. If however the second party is not in the list, it would be wise to check its registration status with the Securities and Exchange Commission. This is especially important for transactions involving big amounts of money.
Contact information. The contact information in the document should be complete: it should include both parties’ complete addresses, telephone numbers, fax numbers, email addresses, website URLs, and mobile numbers and names of contact persons.
Deal specification. Whether a company provides a product or a service, the contract should include the full specification of the arrangement, complete with date of delivery or completion, price, package costs, terms of payment and penalties for any delay in delivery or payment. Any special arrangement between the two parties should also be indicated in the contract.
Place for signatures. The names of the agreeing parties including those of their approving officials should be correctly spelled. Usually, four signatures are sufficient to seal a contract: those of the representative or account person and the approving officer for each party. However, some companies require more than four approvals; some require even five approvals or signatures. Therefore, the salesperson must ask the client about their approval policy before drafting the contract.
Terms and conditions. Legally required statements or terms are indicated in this section of the contract. The terms and conditions, especially if they are lengthy, may be enumerated on a separate sheet. The procedures for litigation and breaching of the contract form part of the terms and conditions. Other items included in this section are deadlines, cancellation terms and lead-times. It is important for a salesperson to read and explain this part of the contract to the client.
This article was originally published in the January-February 2010 issue of Entrepreneur Philippines.