What contracts does your UK business need?

A contract is a set of promises between two or more parties that have been agreed and signed by both parties.

In the UK, businesses need contracts for most transactions outside of personal agreements.

The law treats b2b contracts differently to business to consumer contracts as they are viewed as being more one-sided in favour of the business.

Businesses should have a contract in place even if you think it’s not legally required. Your b2b contract can:

  • Set out terms and conditions
  • Protect your business and ensure you get paid
  • Avoid disagreements with business partners
  • Show good practice and help you to avoid things like insolvency claims or disputes over ownership

For more on business to business contracts, see commercial law firm Crest Legal

There are three common kinds of b2b contract:

Contracts for services – this type of contract is used when one business agrees to provide a service for another business such as building work, cleaning, catering, legal advice and so on.

Contracts for goods – this type of contract is used when one business agrees to supply another with goods such as food, tools, materials and so on.

Contracts for the sale and purchase of land – this type of contract is used when one business buys land from another example, a builder buys land from a local authority.

In the United Kingdom, there are a number of legal agreements you should have in place. These documents protect your business from liability and help you take better care of your customers and partnerships.

Contracts with clients

The best way to avoid disputes with clients is to have a basic contract in place. This agreement specifies what your client expects from your company and what you expect from them.

The contract should cover a variety of elements, including payment terms, the length of the relationship and specific services you will provide for a fee. Having a contract allows you to prove that a client agreed to a set of terms, which may prevent them from going back on any verbal agreements they made with you or your staff.

Employee contracts

It’s also important to have employee contracts in place that clearly outline the expectations of both parties. For example, an employment contract can outline how much an employee will be paid, what benefits they’re eligible for and how long they’ll work for your company. These details help ensure that both parties are clear about their roles and responsibilities within the business.

Confidentiality agreements

Some companies may need confidentiality agreements or non-disclosure agreements (NDAs). These documents protect proprietary information by limiting who has access to it and how it can be used.

Find out more about confidentiality agreements.

Partnership agreements

Whether you are involved in a business deal, starting a new company, or developing an overall business plan for your company, you will need to have a legal agreement. If you are planning on entering into a partnership with someone else or doing business with another company then you will need to have a legal agreement that outlines all the expectations between the two of you.

The parties who are involved in an agreement need to know when their obligations and liabilities end. This is important and is considered as one of the points that need to be highlighted in a business to business contract.

Contracts with suppliers 

Negotiate with your suppliers to obtain concessions on price, quality or delivery terms. These concessions must be listed in your contract as they make it easier for you to assess if you are getting a good deal or not.

This may assist you in determining whether you will accept any new offers from your supplier or not.

If there are no such concessions, then discuss this with your buyer and try to get them to agree to relax their requirements for delivery or quality in return for concessions on price.

The payment terms and method employed by the buyer must also be listed in the contract along with any penalties that apply for late payments. It can also help you determine whether you will pay within the time frame specified by your supplier or not. You can also include other penalties such as charges for non-payment or charges for returned cheques, etc.

Don’t Let The Shareholder/Director Conflict Ruin Your Business

A director-shareholder is an owner who also serves as a company director. It’s important to be aware of the difference between each as the business grows.

So what is the difference?

The following are the main differences between directors and shareholders.

  • Directors can be appointed by the shareholders (or elected by them depending on the articles of association) to manage the company on behalf of the shareholders.
  • They set the strategy, approve major decisions and appoint senior managers.
  • Shareholders can vote at general meetings (if one is held each year) to remove directors they feel are doing a bad job, or if they want to appoint somebody else.
  • The articles of association is a document that contains most of the rules that govern how a company is run, including who can be a director (generally anybody with an interest in the company’s success)
  • What powers directors have
  • When meetings should be held and who can attend them
  • If you’re a shareholder, getting hold of a copy of the articles is a good idea as it will tell you what rights you have and how your shares can be valued.

Conflict of interest can arise if this person uses his position to further his own interests rather than the interests of the company.

Generally, directors are fiduciaries with a duty to make decisions in the best interest of the corporation. The director must avoid even the perception that he may be acting in his own self-interest instead of for the benefit of all shareholders.

The growth in the number of companies with at least one insider on their board has led to more scrutiny by regulators and shareholders alike.

Find out more about the laws of corporate governance

Some boards have adopted governance policies that seek to minimize potential for conflict between directors and owners. These policies can prohibit, for example, dual-class stock structures that give insiders greater voting power than other shareholders or allow insider directors to cash out their holdings upon retirement or termination, while requiring other shareholders to wait until the next annual meeting to sell their shares.

Some shareholders in a company can be “sleeping” lenders providing finance, and not involved in the management at all.

A sleeping lender is just that: they’re lending money to the company and not really doing much else, apart from being a member of the company and receiving dividends.

The other type of shareholder in a company is one who is much more active in the running of the company, for example by taking on a directorship role.

Shareholders in a company are legally entitled to certain rights when they become members. Some of these rights can be very important in difficult situations when things aren’t going so well for the company and one or more shareholders may want to do something about it. For example:

Right to information: As a member, you’re legally entitled to know about key business issues such as poor performance against targets, requests for financial assistance from other members, issues with contracts and suppliers and changes to directors.

Right to vote: You have the right to vote at meetings (which will generally only happen if there’s something like an annual general meeting or extraordinary general meeting). You can exercise this right even if you’re not physically present at the meeting – your vote will be counted by someone else attending instead. 

Day to day involvement

The decisions that shareholders make tend to be more strategic and less frequent than the director’s decisions. Whereas the directors might decide on the introduction of a particular accounting software package, the members are more likely to consider issues such as the management structure of the company.

What is the law?

The law does not seek to prevent all possible conflicts of interest. Some are so remote or insignificant that they present no real risk to corporate governance. The law seeks to regulate those conflicts that might lead to actual or perceived bias, where relevant decisions are made that may be contrary to the interests of minority shareholders.

It is important for directors and shareholders to understand their respective roles clearly, so that neither takes over responsibilities belonging properly to another body. Directors’ duties include making decisions for the benefit of all shareholders, not just themselves, while shareholders are entitled to use their majority voting rights in whatever way they see fit.

Managing the conflict of interest

In most cases, the most effective way to manage a conflict between shareholders and directors is to remove the possibility of a conflict occurring. By planning in advance, the potential for a conflict can be removed before it even begins. Shareholders’ agreements and directors’ service contracts are documents that set out a company’s structure and rules, which makes them ideal for dealing with these issues.

A shareholders’ agreement can establish a range of issues that could potentially cause tension between shareholders. These usually include:

The number of shares owned by each shareholder. This allocation prevents one shareholder from becoming dominant and ensures that all shareholders have an equal say in how the business is run.

How many votes shareholdings will carry at meetings of the company. In most cases, one share equals one vote, but it is sometimes possible to purchase shares entitled to more than one vote. This allocation gives more power to those who have invested more money in the company or who represent a larger group of investors.

To protect shareholders against each other, a clause might also specify that they will not take any action against each other outside of the company. It should also state that if any action is taken against one shareholder, all other shareholders will be notified immediately so they can take appropriate measures to protect their interests.

For more on the conflict of interest between shareholders and directors see netlawman.co.uk.

Boardroom Disputes – Getting Along with the Other Shareholders

As businesses evolve, the once cooperative boardroom can become splintered with shareholders having different interests and opinions.

Issue can arise when you are a board member, company director or shareholder.

A boardroom dispute can arise for many reasons. It could relate to one aspect of the business or several. The reasons can be complex or relate to simple, often personal issues.

The issues could be financial, but they could also be about personalities and conflicts between parties. If you are involved in a dispute it is easy to find yourself at the mercy of someone else’s actions.

However, it is possible to take charge and seek legal advice from a specialist solicitor who has experience in this area of law. Here are some things

What have I done wrong?

It might not be your fault at all and you may have been dragged into the dispute without any prior warning even though you have done nothing wrong at all.

In some cases, shareholders will bring a claim against a company director for something that has happened, even though the director was not involved in the incident at all.

The claim might be that they should have been more aware of what was going on in the company and they should have prevented it from happening instead of leaving it for others to deal with.

Someone who is not a party to the dispute might be dragged into it because they are a company director or shareholder. 

Disputes can be created by the existence of competing interests between shareholders, or between shareholders and directors. They can arise where one shareholder has interests in other companies, which may conflict with the interests of another shareholder.

Find the cause of the dispute

On the other hand, disputes can also occur where there are no competing interests involved, but nevertheless there is poor personal relationship between shareholders or between shareholders and directors. The easiest way to prevent this from happening is to make sure that all parties involved have a clear understanding of what is expected from them before they enter into a contract.

Articles of association

The main objective of a company’s articles of association is to govern how it will be run, and provide a framework for decision making. They also state how these decisions will be made and who can participate in making them. It is important that they are agreed by all those who have an interest in the business.

Some of the key areas covered by “articles” incldue:

  • Shareholder’s rights
  • Director’s duties and powers
  • What happens if the company becomes insolvent?

The general running of the business can include issues at a more granular level for example: How much notice do shareholders have to give if they wish to object to something? Objections could include issues like a director being paid too much or wants to spend money on an overseas trip for a marketing event.

Resolving disputes

Disputes can come from a variety of sources, including employee disputes, partnership disputes, shareholder disputes and many others.

In any dispute, the goal is to identify the real issue at stake and then take action to resolve it as quickly as possible. The longer you wait to deal with a dispute, the more time it gives itself to fester and escalate.

To avoid boardroom disputes, therefore, you need to understand your legal rights and obligations from the outset, and know how best to enforce them. These rights may be different depending on the type of business you are involved in. You may need to take specialist advice based on your particular circumstances.