Harper James advises UK businesses on commercial contracts under the laws of England and Wales, including supply, SaaS, licensing and services agreements. A business contract is formed when the parties reach a legally binding agreement and satisfy the requirements for enforceability.
Formation usually begins with an offer containing sufficiently clear terms, such as the goods or services supplied, price, timing and payment obligations. The other party must accept that offer without materially changing its terms. A response that introduces new terms is generally a counter-offer rather than an acceptance.
Most business contracts also require consideration, meaning each party provides something of value. Payment for services is a common example. The parties must also intend to create legal relations, which is normally presumed in commercial dealings. The terms must be sufficiently certain for a court to identify the parties' obligations.
The agreement may consist of a signed document, exchanged emails, purchase orders, standard terms and documents incorporated by reference. Businesses should identify which terms apply and check for conflicts between documents. A purchase order stating that the buyer's terms apply can conflict with a supplier's quotation or standard conditions. The wording and sequence of the exchanges help determine which terms form part of the contract.
A person signing or accepting terms on behalf of a company must have actual or apparent authority. Companies should also check the signatory requirements in their articles of association and internal approval procedures. A contract can be signed using electronic signatures, provided the method shows an intention to authenticate the document and any required signing formalities are met.
Some agreements become binding immediately, while others make completion conditional on an event, such as regulatory approval, funding or board consent. The contract should state whether the condition prevents the agreement from taking effect or instead gives a party a right to terminate. Keeping a clear record of offers, amendments, acceptance, authority and signed versions reduces disputes about whether a contract was formed and which terms govern the relationship.