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6 Reasons Why Your Business Contract Needs Terms and Conditions

Toronto Business and Technology Lawyer Sukhi Hansra explains how business contract terms and agreements help protect your business. 

SMEs (small and medium enterprises) are essential to the healthy growth of the Canadian economy. According to the venture capital network Fundsquire, 11 new startups are founded every hour in Canada. When establishing a business, most entrepreneurs understandably focus on cash flow, logistics and marketing, often negating nitty-gritty legalities till they arise.

Dedicating time to drawing up business contracts with appropriate terms and conditions should always be a priority as it protects your interests and the business’s bottom line from the get-go. While oral agreements are enforceable, written contracts leave less room for interpretation. Having the correct legalities in place alleviates unnecessary pain points and costs, allowing you to focus on running your business as optimally as possible.

What are Terms and Conditions?

Terms and conditions are an essential part of a business contract for all service or product-based businesses. They define your procedures, dictate the rules of your business relationships and services and lay out expectations for you and your customers, without having to set aside additional time and expenses to draw up specific terms for each separate transaction.

While not mandatory, a terms and conditions agreement also grants you the right to terminate the agreement if the other party fails to comply with its terms. Nowadays, most web-based businesses, like e-commerce stores and SaaS platforms, utilize terms and conditions because it gives them the right to suspend a user’s account if they abuse the product or service.

Here are 6 reasons why your business contract should have clear terms and conditions

6 Reasons Why Your Business Contract Needs Terms and Conditions

1. Improve and Ensure Cashflow

It’s cliché, but a signed contract provides proof and stops clients from going back on their promises. On average, most new businesses require between 18-24 months to reach profitability. For SMEs, it’s vital to outline payment policies such as when payment is due, and what penalties will be implemented for late payments to ensure steady cash flow. Terms and conditions showcase clear requirements around payment timeframes and help you and your customers manage expectations.

2. Increase Trust and Confidence

A well-crafted agreement leaves a favourable impression on prospective customers because it showcases a higher level of professionalism. It indicates diligence and attention to detail on your behalf. A terms and conditions agreement offers transparency and establishes trust as there’s no ambiguity. It will also inspire you to consistently deliver excellent customer service. You can use standard agreement templates as a starting point, but it’s advisable to have a business lawyer draw up terms and conditions that are industry-specific and tailor-made for your business.

3. Limits Liability

All terms and conditions agreements should contain a clause limiting the liability of your business, meaning that your company cannot be held responsible for certain acts. Terms and conditions clearly outline you and your customers’ rights and responsibilities, leaving little room for abuse, provided you uphold the contract. In the case of limited liability, it allows you to limit the damages you’re obligated to pay to your customer if your goods or services fail. This includes the clarification on the definition and handling of defective goods, as well as what constitutes a good and the reasons for them to be refunded.

4. Sets the Governing Law

A governing law clause in the context of a terms and conditions agreement refers to the jurisdiction or area that applies to your agreement. If your goods/services are not limited by location, then you need to limit jurisdictions where complaints are made and clearly specify what legal system governs your interactions. This also extends to forums used for handling disputes arising from any issue or complaint from a transaction between your business and the consumer.

5. Preserves Content Ownership

It’s easy for internet users to steal content and appropriate it as their own, which is why most businesses have an Intellectual Property clause included in their terms and conditions. This is extremely significant as the fourth industrial revolution evolves, and our economies become more heavily reliant and driven by intellectual property. Safeguarding against IP theft is paramount because prevents hefty legal fees and potential court battles down the line.

6. Clear Coverage of Terms

New business owners and entrepreneurs unfamiliar with the intricacy of the law may overlook other vital aspects between consumers and businesses. Terms and conditions extend beyond payment, delivery, refunds and returns. They include the protection of privacy practices, permissions, indemnification and termination of services. If you’re worried about potential oversights, then it’s best to hire a business lawyer to help you draft up appropriate terms and conditions for your business.


Clear communication and clarity is an important component to every business contract. A strong terms and conditions agreement enables you to conduct professional business with transparency, ensuring both you and your customers follow the same set of laws when interacting. Terms and conditions safeguard your business from abuse and allow you to operate with greater peace of mind, knowing you are adequately protected by the law.

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Toronto Contracts Lawyer

In ever-changing markets, business success is underpinned by robust commercial contracts. Hansra Law creates innovative solutions for our clients that adapt to our clients’ growth, no matter the size or stage of their business. To protect the future of your business, contact Sukhi Hansra to schedule a free consultation at (416) 580-0345.

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About 20% of small businesses in Canada fail within their very first year. But it doesn’t have to be that way if you have the right business and legal guidance.