Legal documents and business contracts

A contract is a promise by one party to fulfil an obligation to another party in return for ‘consideration’.

In legal terms, ‘consideration’ means something of value that’s promised by one party to the other. This could be financial remuneration or a promise to do (or not to do) something. It shows that both parties take on some sort of burden or obligation in the agreement.

For example, let’s say A hires B to do a specific project. A agrees to pay B £5,000 for the work. A’s consideration is the £5,000. B’s consideration is their work on the project.

A legal contract sets out the rights and obligations of all parties involved in an agreement. The contract protects everyone’s interests and can help to avoid disputes. If one party breaches the terms of the agreement, the contract contains details about what remedies or solutions are available.

A contract can be made verbally, but it’s much better to set out the terms in writing because if there’s a dispute, you’ll have a clear record of what was agreed.

You could draft contracts and agreements yourself. But if you use SeedLegals to create your legal documents, you benefit from our specialist knowledge and experience.

You’ll want to make sure your documents are properly protecting you and your business. At SeedLegals, all our contract templates are written and reviewed by legal experts.

When you create a legal document on SeedLegals, you’ll step through a series of quick questions to customise the document for your company. In just a few minutes, you’ll have a complete, correctly-worded document ready for signing.

There are four key elements that make a contract legally binding:

• Offer
  The offer is a proposed set of terms that the person making the offer is prepared to be legally bound by.
• Acceptance
  Has an offer been made and unconditionally accepted?
• Consideration
  Does each party promise to provide something of value to the other? This exchange of value should not happen before the contract is signed.
• Intention
  Is it clear that all parties wanted to enter into a legally binding contract?

UK law assumes that all individuals have capacity to enter a contract but there are exceptions: minors, people lacking mental capacity and people under the influence of alcohol or drugs. If someone enters into a contract and later claims they lacked the necessary capacity to sign/agree in the first place, they must prove their incapacity.

A contract is legally binding if it contains the elements of offer, acceptance, consideration, and intention to create legal relations (see FAQ: What makes a contract legally binding?)

A contract can be made verbally, but it’s much better to set out the terms in writing because if there’s a dispute, you’ll have a clear record of what was agreed.

The signing parties are bound by the contract’s terms. If they breach the terms, there are solutions or remedies available to put things right.

The same criteria apply to verbal agreements as to written ones: offer, acceptance, consideration and intent to create legal relations (see FAQ: What makes a contract legally binding?). If a verbal agreement contains these elements, then the law may consider that it’s legally binding.

But what if one party denies that the conversation ever took place? It could be difficult to prove. Your recollection of the conversation will be important and you might need an independent witness - you’ll need to provide evidence demonstrating that you made a binding verbal agreement. With a written and signed legal contract, this situation wouldn’t arise – it’s there in black and white.

If you reach a verbal agreement with someone, it’s important to make sure you follow it up with a written and signed legal contract - the document will act as a record of your conversation.

Important to know: There are some transactions for which a written contract is required – a verbal agreement isn’t sufficient. These include the transfer of shares, the transfer of some intellectual property rights, the sale of land, and any declaration of trust over land.

The same principles apply to a handshake as to a verbal agreement (see FAQ: Is a verbal agreement legally binding?)

A handshake could demonstrate intention to form a contract, but just like a verbal agreement, proving that you’ve formed a legally binding contract with a handshake is difficult. It could also be costly.

With a signed, written legal contract, the intention is there in black and white. Then if there’s a dispute later on, you can easily demonstrate that all parties agreed to the terms of the contract.

The law dictates that certain people aren’t able to form contracts.
They are:

• Children under the age of 18
• People who lack mental capacity
• People who are under the influence of drugs or alcohol

Children under 18 can only enter into two types of contracts:

• Contracts for life’s absolute essentials such as food, drink, clothing, lodging and medicine
• Contracts of apprenticeship, education and service

If a contract doesn’t fall into one of these categories, it's ‘voidable at the minor's option’ - this means that it’s binding unless the minor cancels or ‘voids’ the contract due to lack of capacity.

A contract is considered legally binding when it’s agreed by all parties. The contract can be made verbally, but it’s better to have a written agreement signed by all parties because if there’s a dispute, you have a clear record of what was agreed.

Signatures on a contract show that both (or all) parties accepted the terms set out in the written agreement and intended for the agreement to be legally binding..

If a dispute arises and one party hasn’t signed the contract, you might be able to prove that it’s still a valid and legally binding document. However, you’d need to demonstrate that all parties intended to enter into the contract, and that the parties have acted in line with other parts of the agreement. In practice, this could be hard to prove. It could also take a long time and land you with a hefty bill for legal fees.

It’s much more straightforward if you get your legal documents signed by both parties. The signatures are proof that the agreement exists and that everyone agrees to the terms.

When a contract is between individuals, both parties just need to sign the contract in the right place on the document. It doesn’t usually have to be in the presence of the other party or a witness – and often a contract can now be signed electronically.

If a legal agreement needs to be signed on behalf of a company, the traditional way to sign was to stamp it with the ‘company seal’ - a rubber-stamp showing the company name and often the registration number. Nowadays, contracts requiring a signature from the company are usually signed by a director or someone who has been authorised to sign on the company’s behalf.

• A ‘simple’ contract can be verbal or written
  A deed must always be in writing.
• An essential element of a contract is ‘consideration’
  A deed doesn’t require consideration.
  (See FAQ: What makes a contract legally binding?)
• With a contract, an individual doesn’t need a witness when they sign
  With a deed, they do.
• One person can sign a contract on behalf of a company
  A deed requires two signatures for a company. This could be two directors, or a director and the company secretary, or a director and a witness.

For some transactions, a deed is a legal requirement for the transaction to take place. And for the deed to be legally binding, it must be:

• in writing
• clear that it’s a deed
• ‘executed’ correctly by all parties
  This means all the formalities for creating the deed have been properly carried out.

A business will have legal agreements in place to set out the terms of the company’s relationship with its staff, directors, suppliers, consultants, advisors, shareholders – anyone connected with the business.

Each business legal contract is an agreement that details what’s expected on both sides and what will happen if one party doesn’t fulfil its obligations. Both parties should sign a written contract to say they agree to the terms.

For any company entering into a relationship with an individual or another organisation, it’s good practice to create a written legal contract between both sides. With a written contract in place, the terms of the relationship are clear and both sides are better protected from conflicts in future. If a conflict should arise, then having a written contract makes it much easier to resolve.

The easiest way to create a binding legal agreement is to use an expert-written document.

At SeedLegals, our legal experts have created document templates for the legal contracts and agreements needed by UK startups and small businesses. You can customise the document to suit your company - it’s incredibly quick and easy. There’s built-in help and tutorial videos along the way. If you need any help, just hit the chat bubble to message our team (or you can email us or call, whatever suits you).

You can try SeedLegals for free for 7 days, during which you can create, send, download and print as many documents as you like. After that, just choose one of our memberships to carry on creating and editing your contracts.

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You can try us free for seven days!

When you register with SeedLegals, you’ll have seven days’ free access to our legal agreement templates, built-in guidance and help from our team. You can create as many legal contracts as you like, then send, sign and store them on SeedLegals.

To carry on creating and editing legal agreements after seven days, choose one of our memberships.

It’s easy to start creating legal agreements for your company.
Here’s how:
 
→   Register or log in
Go to Agreements and select the type of contract
 
→   Create the contract
Add details of who’s signing, choose terms, and any extra information
 
→   Ask us if you need help
Click the bubble to chat with our experts
 
→   Done!
Send, sign and store the document on SeedLegals