FAQs About Handling Contracts as an SME

Updated on 5 June 2024

Subscription Form (#66)

contracts for small business owners

South Africa has the potential to outsource goods and services abroad. They have a strategic position, qualified staff, and cost-effective solutions. The country maintains a competitive advantage in different areas, including alternative legal services, finance and accounting, human resource outsourcing, and enabling access to the vibrant African market and beyond. As a result, South African small and medium-sized enterprises (SME) must handle numerous contracts for their businesses to run efficiently.

However, contracts are the pillar of SME client relationships. They create trust, mutual understanding, and a strong foundation to build a business. We have compiled insight about handling contracts as an SME.

FAQs about Understanding Contracts

1. What Is a Contract?

It is a legally binding agreement between two or more parties that governs any transaction made in a business operation. Ideally, these business contracts are drafted by either the buyer or the seller, and they will describe the specific terms of an agreement, such as, what is being promised by each party, when these promises need to be completed, and when payment for these products and services will be due.

2. Importance of Contracts for SMEs

Business contracts are key for SMEs, they provide a structure for buying, selling, and protecting business interests. They include a specification of the rights, duties, expectations, and obligations of all businesses involved for maintaining transparency, reducing risks, and building trust between businesses and their customers or even partners

What are Legal Requirements for a Valid Contract in South Africa

1. Offer and Acceptance

The SME who makes the offer presents a statement which is called an offer. It entails the terms as well as the responsibilities and roles of parties in the contract. When the contract is accepted then it ensures that the agreement has been examined and acknowledged by both parties

2. Writing and Registration

A contract needs to be in writing. An oral contract can be valid but in a case of misrepresentation, it can be voidable.

3. Competency of Involved Parties

A person who has an unstable mind. An intoxicated person or a minor cannot sign a contract. Both parties have to be competent and must have a legal capacity to do so.

4. Consideration

Consideration is the price for which the promisor of the other is brought. It can be cash, kind, or an act. The consideration should not be unlawful, against public policy, or immoral.

5. Legality

The contract must follow the law of the land and should not contradict public policy. The details mentioned in the contract should abide by the Contract Law.

6. Mutuality

The parties who agree to the terms of the contract show that they know the terms and conditions of the contract. They should agree to the terms. The contract is void if either of the parties does not agree to the terms mentioned in the contract.

What are Basic Types of Contracts for SMEs

1. Employment Contract

An employment contract is an agreement or term of hire that is created by an employer to an employee to set the terms and conditions of their employment.

2. Service Contracts

Service Contracts are the terms and conditions of services provided by SMEs. These contracts detail the scope of services, deliverables, project timelines, payment terms, and any other relevant information.

3. Sales and Purchase Agreements

Sales and purchase contracts are an agreement between the buyer and a seller to iron out the transaction. It also outlines the terms and conditions of the exchange and it is signed by both parties.

4. Lease agreements

A lease agreement is an agreement that happens when there are terms of rental agreements from real estate, equipment, or facilities for a specified renting duration that both parties are involved in signing.

FAQS for South African SMEs

1. Can Contracts Be Verbal in South Africa?

Verbal contracts are generally valid and constitutional alongside the law, although proving their existence and terms can be more challenging compared to written contracts.

2. What Are The Risks of an SME Not Having a Written Contract?

When there is no written agreement on the terms of the contract, it is harder to prove the existence of certain terms should any action be taken between the parties.

3. How Can SMEs Protect Themselves in Contracts?

SMEs can protect themselves by clearly outlining the deliverables, and payment terms and protecting sensitive information by making the other party sign a Non-Disclosure Agreement (NDA) and any other intellectual property rights.

4. What Should SMEs Do If They Cannot Afford a Lawyer?

While a Lawyer is important, an SME can use free templates, industry associate resources, or even legal online guides to get access to the resources they need.

SMEs need to be able to know what type of contracts are there, how to draft them, and how to handle contracts for certain services to keep their business growing efficiently while maintaining transparency, to avoid risks of their business collapsing due to mishandling contracts in a wrong manner.

Get Weekly 5-Minutes Business Advice

Subscribe to receive actionable business tips and resources.

Subscription Form (#66)

Feeling Stuck?