Understanding contracts

Understanding contracts


Working in a business environment, you will inevitably come across contracts at some point. There are basic employee contracts you will encounter when hiring or starting a new job, but then there are more complicated contracts that require greater attention be paid. A contract is a legally binding agreement so they must be entered into carefully with a full understanding of the commitment.

Kinds of contracts:
Contracts can be written, verbal or both in some circumstances, with the more formal contracts being required in writing. Both kinds are legally binding if they contain the elements of a contract. Verbal contracts are hard to prove and rely on the trust of a person unlike written agreements with physical evidence. You must be wary when you agree to an arrangement verbally as in some instances it can be considered a verbal contract and you could be liable if you breach this.

Elements of a contract:
For a contract to legally binding it must contain;

  • an offer
  • an acceptance
  • intention to create a legal relationship
  • a consideration e.g. money

Even with these elements, a contract can be invalidated if it tempts someone into committing a crime/is illegal, is entered into by someone that lacks capacity, such as a minor or bankrupt or was agreed through misleading or deceptive conduct or influence.

Before you sign:
Once you’ve signed a contract you may not be able to get out without compensating the other party. Compensation could include court costs if the other party takes their claim against you to further. You should seek legal advice if you want to include an opting-out clause. Remember to;

  • Read everything, including the fine print, carefully
  • Ensure negotiated terms and conditions are included
  • Seek legal advice
  • Take time to consider and understand the contract
  • Don’t be pressured into signing
  • Never leave blank spaces on a signed contract, cross them out if irrelevant
  • Make sure that you and the other party can make changes to the contract
  • Keep a signed copy for your own records.
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If you believe the matters discussed above are relevant to your business, please contact Darren Smith of our office to discuss further.


Darren is a Chartered Accountant with extensive experience, including working in the big 4 and medium sized firms before becoming a partner of a city based firm in 2000.

He has gained much experience and has extensive knowledge in providing business and taxation advice, superannuation planning, negotiation of sales and acquisitions of businesses and property development. His client base covers a wide range of industry groups.

Darren works with business owners to grow their businesses and create personal wealth within and outside of their business.


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