A Guide for Protecting Business Assets Using Contracts

Relevant For:

Business operators seeking strategies to protect their business assets and prevent legal disputes through effective and enforceable contracts.

Key Points:

• Properly identify and verify contracting parties to avoid costly disputes.
• Include key contract elements: offer, acceptance, consideration, mutuality, capacity and legality.
• Essential contracts include employment, trade terms, leases, shareholder agreements,and NDAs.
• Legal advice is vital for drafting and signing contracts to ensure full asset protection.

Full Article:

This article delves into the critical elements of a business contract and outlines essential agreements that can protect your business assets and prevent legal complications.

Key Elements of a Business Contract

To ensure your contracts are enforceable and protect your interests, it’s essential they contain the following elements:

1. Parties

Correctly identifying the contracting parties is the bedrock of any valid agreement.

Mistakes in this area can result in costly disputes, wasted time, and a weakened legal position. For instance, contracting with a non-existent entity, incorrectly naming a party, or referring to a business name without identifying the actual holder can lead to legal confusion.

Courts may attempt to determine the correct party, but it's much safer to prevent issues from the start by:

• Always having a written contract rather than relying on oral agreements.
• Asking for the ABN/ACN of the other party and verifying it through an ASIC search to confirm their legal identity.
• If a business name is involved, ensure the holder of the business name is clearly listed as the contracting party after confirming their details through ASIC.
• Ensuring the signature blocks clearly specify the capacity in which an individual is signing, whether on behalf of a company, trust, partnership, or as a sole trader. If the contract involves a company, it must comply with the Corporations Act 2001 (Cth) for valid execution.

2. Offer

An offer is a promise made by one party to do (or refrain from doing) something in exchange for value.

The terms must be clear and unambiguous. Offers must outline specific responsibilities, terms, and conditions, and an offer only exists once it reaches the intended party.

Before it is accepted, an offer can be withdrawn or altered. Upon receipt, the other party can accept or reject it, or propose a counteroffer, which terminates the original offer and reopens negotiations.

3. Acceptance

Acceptance occurs when the offer is agreed upon by the other party. While this usually involves signing the contract, a court may find that a contract exists if the parties have started acting in accordance with the contract, even without signatures. Acceptance is judged based on what a reasonable person would interpret from the offeree’s behaviour—whether silence, performance, or explicit agreement.

4. Consideration

A valid contract requires consideration, meaning each party must exchange something of value. This could be services, goods or money.

For example, if you’ve paid a supplier and they fail to deliver goods, this constitutes a failure of consideration, allowing you to pursue legal remedies to recover your payment.

Consideration ensures that both parties are obligated under the contract, creating a balanced and enforceable agreement.

5. Mutuality

Contracts must demonstrate that both parties understand and agree to the terms, showing intent to create legal relations.

If this stage is not reached, the contract may not be enforceable.

Once mutual agreement is established, the contract can only be voided under certain conditions, such as mutual consent, breach or vitiating factors like misrepresentation or duress.

6. Capacity

All parties must have the legal ability to enter into the contract, meaning they are of sound mind and legal age.

Contracts with minors or individuals under undue influence (e.g., intoxication or coercion) may be considered void or voidable.

This reinforces the importance of verifying the other party’s capacity before formalising any agreement.

7. Legality

The contract’s purpose must be lawful.

Agreements that involve illegal activities—such as selling prohibited items or services—are void from the outset.

Contracts must always align with public policy and legal standards.

By ensuring these elements are present, business owners can create robust contracts that not only protect their interests but also withstand legal scrutiny if disputes arise.

Essential Contracts for Business Asset Protection

Every business, regardless of size, should have certain core agreements in place to protect assets, regulate relationships, and mitigate risks.

Below are some key types of contracts that form the foundation of asset protection: