Why do you need terms of trade?
Your terms of trade define how you do business. You might consider that some terms are implied, but implied terms will never replace expressed terms or terms that are in writing. You might already be familiar with the concept of an ‘agreement’ or a ‘contract’ (ie, a legally binding agreement), so consider your terms of trade as your contract with your customers or clients.
In that contract you can determine things like what you’re going to do for them and what they’re going to do for you in return (ie, payment).
You might cover other things like time for payment and penalties for late payment, or you might detail issues like warranties, guarantees and maybe return policies. The extent and detail of your terms of trade really depend on the nature of your business and the risks that you wish to manage.
If your business is all about ‘point of sale’ transactions that happen over the counter, you might not have a written contract with each of your customers but you may need to have notices regarding return policies clearly visible around your shop. If you extend credit to your customers, you might require your customers to provide security in the form of personal guarantees or maybe even an interest over some kind of property. If you trade over the internet, your website might contain your terms of trade as part of the website or the online shopping cart. Or if you do business by quoting and signing up customers, you might place your terms and conditions on the back of your quoting form and ask customers to sign their acceptance of the quote as well as your terms.
The bottom line is that there’s no specific rule regarding how your terms of trade should be reflected in your business, and you need to assist your business or sales procedure to determine at what point in time do you ‘have a deal’. That’s when you need to concentrate on ensuring that your customers or clients have clearly understood your terms of trade and have accepted them. Finding the right balance between what is commercially acceptable and legally enforceable is not easy, and sometimes you need to find an acceptable compromise that protects your interest but does not hinder your ability to do business – and that’s exactly where we can help.
Starting up a business can be challenging. While it is important to try to get the business up and running as soon as possible, a lot of entrepreneurs fall into the trap of not paying attention to matters that, if left unattended, may cause problems in the future. An example of these sorts of matters is matters that involve legal documentation, such as confidentiality and non-disclosure agreements, terms of trade, and partnership or shareholder’s agreements.
One of the commonly missed steps in setting up a business is a shareholder’s or partnership agreement. This is used in a situation where there are two or more entrepreneurs working together in a business. Whichever agreement is used depends on the structure of the business, however the best time to prepare the agreement is right at the start of the business, before any disputes arise between the parties.
One of the matters that a shareholder’s agreement deals with is in regard to exiting the business. This may happen due to retirement, disability or even death. In the instance of a shareholder retiring, the shareholder’s agreement may give the other shareholders the option or first right to purchase the shares.
In the instance where a shareholder has passed away, the shares may be of little value to any other party other than the other shareholders. This can result in the shares being sold to other parties at a fraction of what they may be worth. In such a circumstance the shareholders agreement may specify that the other shareholders must compulsorily purchase the shares.
As many of the matters that a shareholder’s agreement covers is typically not covered by the company’s constitution, a shareholder’s agreement operates as a supplement to the company constitution. An ideal agreement deals with issues that have a distinct possibility of arising during the life of a business. It can also provide for a mechanism which resolves those same issues without the need of court intervention.
A shareholder’s agreement can include provisions regarding:
- Direction and type of business undertaken
- Meeting Procedures
- Policies, Management, and Structure
- Procedures of appointment of directors or executives
- Voting rights and what decisions require votes
- What decisions are considered major decisions and what percentage of votes are required to pass these decisions
- The rights of minority voters
- Breaking deadlocks
- Shareholder’s exit strategies (including what happens if a shareholder passes away)
- Shareholder’s warranties
- Confidentiality agreements
- Restraint of trade
- Dispute Resolution
In summary, a shareholder’s agreement can deal with a wide variety of matters that may arise in the life of a business. The failure to address these issues can lead to expensive litigation or even to the failure of the business itself. It is therefore very important to have these matters dealt with early. Don’t leave these matters to chance or ignore it just because there are no problems at this point in time. You never know what is around the corner.