Five Critical Business Contracts to Consider

Whether you are starting out, or winding down, whether your business is family owned with a niche customer focus or a global company that has a far reaching impact, you need to be making the best and most sound decisions for your business. What are the types of business contracts you might need drafted for your business over its life time?

1. Business sales

When the majority of people think of starting a business, they imagine starting from scratch. Incorporating your business with your own ideas and building your company from the ground up. Which is obviously exciting but it does also have some distinct disadvantages - including the difficulty of building a customer base, marketing the new business, hiring employees and establishing cash flow. Often without a proven track record or reputation to back you up. Buying an existing business is less risky. When you buy a business, you take over an operation that's already generating cash flow and profits. You have an established customer base, reputation and employees who are familiar with all aspects of the business. And you don't have to reinvent the wheel--setting up new procedures, systems and policies;

2. Company formation and structuring

The Companies Act of 2008 relays the appropriate types of business structures found in South Africa relating to companies. Specifically what types of companies you can form and how to go about doing that. You have a choice between (1) a sole proprietorship (often known as a sole trader, it is a business structure that is owned and run by one individual, where there is no separation between the owner and the business structure), (2) a partnership (the common view of between 2 and 20 people who contractually agree to operate a profit generating business together. They further agree to split any profits as per their agreement and in proportion to their interests), (3) a private company (a Pty Ltd, a private company is seen as separate legal entity and as such is taxed in their own right, offering the shareholders protection against liabilities), (4) a public company (known as Ltd companies, they are seen as having their own legal identity and are therefore taxed in their own right), (5) personal liability companies (such as attorneys and accountants that under section 8(2)(c) of the Companies Act their directors are jointly and severally liable, together with the company, for any debts and liabilities of the company), (6) state owned companies (a company defined as a “state-owned enterprise” in the Public Finance Management Act 1 of 1999 or a company owned by a municipality), (7) a non-profit company (this is an incorporated public company that is established, as an example, for some form of cultural or social activities or communal / group interests. Income is not distributed to any stakeholder from this type of business structure) and (8) foreign and external companies (foreign owned companies that are incorporated outside of South Africa but trade in South Africa);

3. Legal compliance

This entails ensuring that a company complies with all the necessary laws and regulations that may be applicable to their specific industry.  Ensuring you are legally compliant will entail a thorough analysis of each and every applicable law or regulation pertaining to your specific industry and thereafter ensuring that the company has undertaken the necessary steps required of them to avoid any compliance difficulties. The compliance issues that usually arise are due to contracts which require specific performance at specific times. Knowing what these are and when they need to be performed is crucial;

4. Due diligence investigations

This is the process of looking for any hidden liabilities before you enter into a contract with another individual or company and is usually required in high risk transactions. A professional due diligence investigation or audit ensures that you have the information you need regarding the benefits and risks of a transaction before making any major decisions, and

5. General commercial advisory

General day-to-day legal services to corporations (and their boards of directors) and individuals on an array of corporate and commercial law matters, such as advice on board resolutions and structuring, corporate governance issues, general maintenance of corporate records, holding shareholders meetings, regulatory reporting requirements, providing opinions on a possible transaction as well as managing commercial or employment contracts.