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Every entrepreneur deals with contracts and agreements with customers and suppliers on a regular basis. You may hire staff, buy or sell goods, rent or hire equipment or premises. Both parties have to observe rights and duties. What are they, and how do you draw up a good contract? How do you avoid unpleasant surprises?
What is a contract or agreement?A contract is a spoken or written agreement between 2 or more parties. A contract obliges you to perform a certain duty, or it entitles you to the performance of a duty by someone else. The words contract and agreement can both be used.
Who can enter into a contract?Both natural and legal persons (for instance a private limited company or bv) can enter into a contract. You must have legal capacity for the contract to be valid. In other words, you cannot be in ward (curatele), and you must be over 18. If you are a minor, you have to get permission from your legal representative (usually your parents or guardians). There are exceptions for contracts that minors can reasonably be expected to enter into. If you are 16 or over, you can apply to the district court for so-called limited legal capacity (handlichting in Dutch). With this capacity, you will be able to conclude contracts.
How do you conclude a contract?You can conclude a contract in several ways. A spoken (or oral) agreement is just as valid as a written one. If a deal is proposed by one party, and the other party accepts, you have a contract. Nevertheless, it is wise to lay down your agreement in writing. That way you can prove that what you say was agreed, really was. There are some situations where only a written contract is valid, for instance when you deliver shares for a private limited company, you must get a deed from an actuary or notary.
Contents of a contractThe main thing to include in the contract is the description of the product or servce, the price and the acceptance by the customer. It also often contains agreements on:
- the duration of the contract
- the notice period
- consequences of failure to live up to obligations
- terms of payment and collection
- service and maintenance obligations
- the handling of disputes
What invalidates a contract?A contract can be ruled invalid or reversed if:
- one of the parties is a minor, or in ward
- the person signing the agreement is not authorised to represent the organisation or company
- the contents of the agreement violate the law, the rules of common decency, public safety, or are unreasonable or unfair
- the information given about the contract was misleading (for instance, if one of the parties entered into the agreement because they had the wrong impression of a product)
- the agreement was entered into under threat, abuse of circumstances or deceit
General terms and conditionsGeneral terms and conditions are a special type of contract. They complement the specific agreements you make with a customer or supplier. If you draw up your general terms and conditions once, you can use them for all future contracts. You won’t have to draw up new general terms and conditions for each delivery you make; your delivery terms are in your general terms and conditions. This saves time and effort. Your client must be able to find these terms and conditions easily, for example on your website.
Types of agreementsThere are many types of agreements:
- You conclude a sales contract or purchase agreement when you supply products or services.
- If you are a self-employed professional, you use model agreements to prove to the Tax Administration that you’re not in your client’s employ.
- If a public authority awards you a project in a tender, you conclude a procurement contract.
- You lay down agreements with the owner of a franchise in a franchise agreement.
- An employment contract is the agreement between employer and employee that contains work arrangements.
- A non-disclosure agreement (NDA) is used to protect confidential information.
- You lay down arrangements on the financing of company equipment and vehicles in a lease contract.
- A rental agreement serves to record arrangements for renting or hiring company accommodation.
- If you want to start a company with others, you conclude an agreement for your legal business structure, for instance a general, professional or limited partnership.
Things to take into account
Find out if the person you’re dealing with is legally capable and authorisedBefore you conclude an agreement, you will often have to negotiate. This is important for making clear what you and the other party want and mean. The contents of your agreement reflect these wishes and expectations. While you are in this preliminary phase, take some time to verify that the person you are dealing with is legally capable (i.e. not a minor or in ward), and authorised. You can find out who is authorised to sing on behalf of a company by checking the Commercial Register. You can search for information in the Commercial Register by trade name, address or Chamber of Commerce number (in Dutch only). Searches are free of charge. You can find out if someone is in ward by checking The Central Receivership and Administration Register (Curateleregister, in Dutch).
Don’t simply withdraw during negotiationsDuring negotiations, there is no contract. However, negotiations may be partially binding. The further along the process you are, and the more promises are made, the more you may rely on reaching an agreement. When you have come that far, you cannot simply withdraw from negotiations. If you do, you may have to pay compensation.
Declaration of intent
Be careful when you sign a declaration of intent. You may be entering into obligations without wanting to. Be sure to read the contents of the declaration carefully.