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Three Essential Components to Make Your Online Business Contracts Enforceable

May 09, 2023
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Three Essential Components to Make Your Online Business Contracts Enforceable

Contracts are an essential part of any business, including an online business. When working with contracts in your online business there are three important considerations to keep top of mind that I’ll be reviewing in this blog: the essential elements that make up an enforceable contract, correct identification of the parties, and proper execution of the contract. These basic contract principles will apply to your online business, whether you are a course creator, coach, a 1:1 service provider or run a membership.

The Legal Elements of an Online Business Contract

Let’s take a look at the key components that make up a contract. From a legal perspective, a contract needs four elements to be an enforceable contract:  an offer, acceptance of the offer, consideration and mutuality. An offer is when one party makes a promise to do (or not do) something in the future. Acceptance of a contract can occur through words or actions. The party accepting the offer can say they accept the offer or act in a way that demonstrates acceptance, like paying money for something. Mutuality simply means the parties understand and agree to the basic terms of the contract, or have what’s called a “meeting of the minds” about the contract. The third element, consideration, can sometimes be confusing. At its most basic level, consideration means the parties are exchanging something of value as part of their contract relationship.  In the business world, consideration often means money.  One party offers to sell a product or service and the other party agrees to pay for it. But consideration doesn’t have to be money. It can be other things of value to the parties. When online businesses collaborate, there isn’t always a monetary payment in exchange for delivery or a product or service. 

Let’s take the example of a guest speaker that delivers a presentation inside of a course offered by an online course creator. The course creator could pay the speaker a fee for the presentation.  This is a simple expression of consideration for the speaker giving her time to present to the course creator’s students. But what if the speaker isn't paid for her presentation? Does that mean there isn’t consideration for the contract? The answer is no, as there can still be a valid contract if the parties express an alternate benefit for the speaker to deliver the presentation. The speaker will be able to showcase her expertise and skill in front of the course creator’s audience. Appearing in front of the course creator’s audience is a marketing opportunity, giving the speaker access to an audience that she doesn’t presently have. The course creator’s audience will have the opportunity to get to know the guest speaker in depth, more than would be possible through other marketing channels such as social media. This intimate form of marketing has value to the guest speaker apart from any money the course creator does or doesn't pay her. When this form of consideration is expressed in the contract for the speaker that isn’t paid, the contract is still enforceable. 

Correctly Identify the Parties to Your Online Business Contract

Another key consideration in working with contracts in your business is making sure that the correct parties are named in the contract. If you’ve formed a legal entity to operate your online business (and I hope you have!), it can be easy to forget that it’s the LLC that is entering into various contracts for your business, and not you personally.  This can be especially true if you use your given name as the name of your LLC.  Let’s look at an example. Suppose that Abby Jones is a course creator, and she’s formed an LLC called Abby Jones LLC. Even though Abby Jones is the face of the business and the person creating and delivering the content and marketing the courses, it’s the limited liability company that is operating the business.  When Abby Jones LLC enters into contracts, it's essential that the party that is listed in the contract and that signs the contract is Abby Jones LLC, not Abby Jones.  If the word “LLC” is left off the name in the contract document, this means that Abby Jones is signing the contract personally and will be liable personally for performance under the contract. This defeats the whole purpose of creating an entity to provide limited liability protection. In this example, the word “LLC” needs to be included in the contract everywhere that there is a reference to the business named Abby Jones LLC. At a minimum, the correct business name should be included at the beginning of the contract where the parties are listed and on the signature line where the limited liability company is signing the contract. If the business name appears in other places in the contract, then the correct name of the business should be used there as well. 

A related point to correctly listing the name of your business in your business contracts is to be sure you are signing as a representative of the business.  This means that when you sign your name next to the name of your business, that you are identifying that you are signing as a representative of the business, and not personally.  This is easiest to explain by example.  Let’s say that in our example above, that Abby Jones is the Manager of Abby Jones LLC. On the signature line, where Abby Jones LLC is going to sign the contract, Abby Jones should sign her name, and then next to it, write the word Manager. Her signature would look like this:  Abby Jones, Manager. By signing this way, Abby Jones is making it clear that it is her limited liability company, Abby Jones LLC that is signing the contract, and not Abby Jones personally. 

Make Sure Your Online Business Contracts Are Properly Signed

For a contract to be enforceable, it also needs to be fully signed by both parties. In online business there are two common types of contracts used. The first is a bilateral contract, where both parties sign the agreement. In a bilateral contract situation, both parties have the opportunity to negotiate the terms of the contract. This doesn’t necessarily mean that if one party requests changes to the contract that the other party will agree to those changes, but in theory there is an opportunity to negotiate the terms. If one party requests changes to the contract and the other party doesn’t agree, then the party requesting the change can decide whether to go forward with the contract or walk away. If you have sent the contract to your customer to sign, after you receive their signature you must also sign the contact and return a fully signed contract back to your customer.  If you don’t return the signed agreement, and there is a dispute, your customer can make an argument that you never had a written agreement because you never signed it and returned the fully signed agreement to your customer. 

The second common type of contract used is what’s referred to as terms of use or terms and conditions.  This type of contract is presented to customers and the customers are asked to accept the terms and conditions.  There is no counter-signed document returned to the customer. Terms and conditions are enforceable, but it’s important that you take certain steps to make sure your customers are aware of the terms and have an opportunity to read them before making a purchase from you or entering into a business arrangement. The first step in making your terms and conditions enforceable is to tell your customers that you have them. The customer must be able to easily locate and access the terms and conditions that apply to their purchase prior to making the purchase or prior to entering into a business arrangement with your business.  And, if there is ever a dispute about your terms and conditions, you’ll want to have some kind of evidence or proof that the customer was provided with the terms and conditions prior to making the sale and expressly accepted them.  The easiest way to do this is with a check-box on the checkout page that includes a hyperlink to the terms and conditions. The customer would be required to check the box prior to making the purchase.  You should keep an electronic record through your website that the customer clicked the box agreeing to your terms and conditions. This would be important proof if there was a dispute or litigation involving your terms and conditions. This type of system would demonstrate that you informed your customers about the terms and conditions, presented them with a link to read them, and then required them to expressly accept them before continuing with the purchase. 

Are you looking for contract templates to use in your online business that you can easily customize yourself? Be sure to check out my contract template shop by clicking the link below.

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