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Your business contracts set the legal framework for how your business operates. Regardless of your business’ size or industry, your business will likely have contracts with suppliers, customers and its employees. However, contracts are not static documents and must be updated as your business changes and grows. Contract reviews and updates are vital for risk mitigation. This article will explore how updating your contracts will protect your business.
Why is Updating Business Contracts Necessary?
Contracts can safeguard your business from legal risks. For example, a contract with a supplier can include a dispute resolution clause that determines the processes you must undertake if things go wrong. Alternatively, the contract can help mitigate against potential risks, such as termination due to insolvency, which allows you to end the contract if the other party becomes insolvent.
However, you should not prepare your contracts and then forget about them. Contracts should be living documents. This means you should have lawyers constantly review and update your contracts as your business grows. Over time, you must ensure that your contracts are still fit for purpose and protect your business as far as possible.
Download this free Supplier Contracts Checklist to ensure your contracts will meet your business’ needs.
How Can Updating Contracts Protect Your Business?
Here are a few of the key ways in which updating your contracts can protect you from risk:
1. Ensuring Your Contracts Are Fit-for-Purpose
Over time, a lot can change in a business. As such, it is essential to ensure that your contracts are still fit for purpose and appropriate for your business. Say a start-up prepares a simple contract with basic terms to cover selling non-customised products to customers. Over time, it may begin to sell more bespoke products and services. Therefore, the start-up’s original contract would need to be updated. The start-up would need to include various additional terms in its contract, such as provisions around the delivery of services and more bespoke products.
As business priorities and trading activities change, updating your contracts will allow you to assess whether they are still appropriate. Failing to update your contracts over time could expose your business to problems.
Over time, there may also be outside events that impact your operations and how you do business. For example, the COVID-19 pandemic forced businesses to revisit their commercial contracts to ensure that they were protected if the pandemic had an impact on their contractual commitments.
2. Legal Compliance
Many contracts need to include specific terms to comply with legal requirements. Businesses must comply with all legal obligations applicable to them. Failing to meet the requirements in business contracts can lead to various problems.
For example, consumer and e-commerce laws require businesses to provide various information to customers in writing before a contract is signed. Your contract must comply with consumer laws.
Additionally, the General Data Protection Regulation (‘GDPR’) and data protection laws require mandatory ‘data processing terms’ in contracts where a data controller uses a data processor who processes personal information. You will likely need several mandatory data processing clauses in your contract, such as provisions around dealing with personal data and reporting data breaches.
3. Minimise Risk
Over time, you will understand the key contractual risks for your business. You should update your contracts to minimise your exposure to risk as your business develops.
There may be certain contractual risks and terms that are problematic for your business. For example, you may notice that onerous clauses are dissuading customers from doing business with you. To secure more business with customers and reduce negotiation time, you may decide to remove such clauses from your contracts. Experience will teach you which parts of your contracts are problematic, and you should review them with hindsight.
Moreover, if you face recurring problems such as customer complaints, you might need to make your contract terms clearer to ensure customer expectations are realistic. You can also include additional provisions to protect your business from new risk factors, such as more contract disclaimers about your services and a more detailed dispute resolution process.
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Key Takeaways
Contracts are vital documents that help minimise your business’ exposure to legal risks. You should update your contracts throughout your business journey. Updating contracts allows you to assess if your contracts are still fit for purpose as your business grows and changes. Updating contracts also enables you to:
- refine your terms to comply with applicable laws; and
- protect you from new risks and problems that have arisen over time.
If you need help reviewing or updating a contract, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
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