Entering business contracts is a significant aspect of running an online business. These can cover a variety of relationships for your online store, such as a purchase contract when buying goods from an online retailer, a legal agreement about consumer rights or a contract regarding intellectual property. One type of online contract your e-commerce business may enter is a service contract or a contract for service. This article will explain the importance of a contract for service for your e-commerce business.
What is a Contract for Service?
As an e-commerce business, you will likely need the services of others to help your site run smoothly. For example, you may need services such as:
- a website hoster;
- social media marketing; or
- a content writer.
When other businesses provide your e-commerce brand with services, you will likely enter into a contract for service or a service agreement. This is a business-to-business agreement and will be legally binding. It will outline what the business has agreed to provide you with and the details of the arrangement. You may also have a contract for services in place if your business is a service provider.
Importance of a Contract for Service
Negotiating, drafting and entering a contract provides numerous benefits for your business. We explore these below.
1. Legal Protection
A service agreement, like other contracts, is a legally binding agreement. It follows that if there is an issue with the service provider or their services, you have a legal avenue for compensation. For instance, the service might be late, of poor quality, or not what was originally agreed. In that case, you can point to the original contract and claim the other party is in breach. As contracts are protected by the law, contractual breaches allow you to take necessary legal actions.
Additionally, your service agreement will generally be in writing, giving you greater protection against mismatched expectations. Unlike a verbal agreement, a written agreement is less vulnerable to miscommunication, giving you greater legal protection. Otherwise, you will have increased difficulty claiming your rights if it is one party's word against the other.
2. Clarity and Clear Expectations
There are many essential terms a contract of services should include. This applies whether you are gaining the services or providing them. Essential terms include:
- the agreed service;
- payment in exchange for the service;
- late payment fees, if any;
- deadline to deliver the service; and
- dispute resolution clause, amongst others.
By clearly outlining each party's rights and obligations, there is greater clarity about the arrangement. If a dispute were to arise, you could simply refer back to the contract and work toward a solution. Without a service agreement in place, it will be more challenging to argue your case of a breach of contract.
3. Outlining the Business Relationship
A contact for service will detail your relationship with the other party. In this case, either you are a service provider or a business receiving a service. As an e-commerce business, you will likely pay tax as a sole trader or company if you have incorporated your business. Having a service agreement that clearly defines who the parties to the contract are and what their relationship is will avoid being treated as an employee of that business. Being an employee will have different tax implications, so clearly outlining your business relationship within the contract will be beneficial.
Key Takeaways
Your e-commerce business may provide services to other entities or require their services. If this is the case, it is crucial to enter into an agreement for service. Entering a contract offers many benefits, including legal protection, clarity and clear expectations, and a clearer business relationship.
