Many businesses are built on trust, longstanding relationships and a good handshake. That practical approach is part of what makes our local business community strong. You know your customers, you work hard and you rely on people to do the right thing.

That approach can work well — until it doesn't. A delayed payment, a disagreement over what was promised or a breakdown in the relationship can quickly turn a working arrangement into an expensive problem. In our experience, it is often at this point that owners wish they had recorded the arrangement in writing from the outset.

Why Putting Agreements in Writing Matters

In New Zealand, verbal agreements are legally binding if the essential elements of a contract are present. The difficulty is not whether an agreement exists; it is proving what was agreed.

Without a written agreement, each party may have a different understanding of important matters, such as payment terms, scope of work, timelines, quality and what should happen if circumstances change. Such misunderstandings can quickly become costly disputes.

A well-prepared written agreement provides clarity from the outset.

Agreements Every Small Business Should Consider Putting in Writing

For small businesses, we recommend documenting the following arrangements:

• Terms of Trade with customers
• Supply Agreements
• Contractor Agreements
• Commercial Leases
• Loan and Repayment Agreements
• Shareholders' Agreements
• Any arrangement involving significant money, risk or reliance on another party

Terms of Trade and a Shareholders' Agreement are two of the most important documents for your business. Shareholders' Agreements are often "bottom drawer" documents, meaning that they are prepared, signed and rarely looked at again, and Terms of Trade are often skimmed over. But when something does go wrong, they play a critical role in protecting your business.

Terms of Trade set out the rules between you and your customers. They deal with practical issues such as when payment is due, what happens if an account is not paid on time and how liability is managed if something goes wrong. Clear terms give you certainty and make it easier to deal with problems if they arise.

A Shareholders' Agreement is just as important if you have more than one owner in your business, even where those owners are family or close friends. It sets out how decisions are made, what happens if someone wants to exit the business and how disputes will be handled. For example, in a small company context, one of our clients with a clear Shareholders' Agreement was able to navigate a breakdown in the relationship and agree an exit with the counterparty. Another, without any written agreement, found itself stuck in an ongoing dispute because neither owner was willing to compromise or had clear terms to rely on.

Investing in Certainty

Many business owners assume these documents are only for larger companies. They are important for every business, because their value is only realised when you need them.

If you would like to understand how these documents apply to your business, please get in touch with our commercial team.

Frequently Asked Questions

Are verbal agreements legally binding in New Zealand?

Yes. A verbal agreement can be legally binding if the essential elements of a contract are present, including an intention to create legal relations, agreement on key terms and consideration. The challenge is often proving exactly what was agreed if a dispute arises.

If a verbal agreement is legally binding, why should I have a written agreement?

A written agreement provides certainty. It records the rights and obligations of each party, making it much easier to resolve disagreements and enforce the agreement if necessary. It can also help avoid disputes before they arise.

Does a written agreement have to be prepared by a lawyer?

Not always. Some agreements can be relatively simple. However, where significant money, commercial risk, business ownership or ongoing obligations are involved, professionally drafted agreements can help ensure important issues are properly addressed and reduce the risk of costly mistakes.

What should every business agreement include?

Agreements should clearly set out:

• The parties involved
• The goods or services being provided
• Pricing and payment terms
• Timeframes and responsibilities
• What happens if either party does not meet their obligations
• How the agreement can be terminated
• How disputes will be resolved

The right agreement will depend on the nature of the relationship and the transaction.

Can text messages or emails be used as evidence of an agreement?

Yes. Emails, text messages, invoices, quotations and other communications may help demonstrate what was agreed. However, they are often incomplete or open to interpretation, which is why a formal written agreement is generally preferred.

When should I ask a lawyer to prepare an agreement?

You should consider obtaining legal advice whenever an arrangement involves:

• A significant financial commitment
• Business ownership or investment
• Ongoing commercial relationship
• Property or lease arrangements
• Loans or guarantees
• Contractor or supplier arrangements
• Arrangements that could have long-term legal or financial consequences
• Reputational risk
• Land, property, and conveyancing transactions

Seeking advice before entering into an agreement is often considerably less expensive than resolving a dispute later. If in doubt, call your lawyer.

What happens if there is no written agreement?

Without a written agreement, disputes often come down to conflicting recollection of conversations, emails or other conduct. This can make legal proceedings more time-consuming, uncertain and expensive. A written agreement helps minimise these risks by clearly recording what was agreed.

How often should agreements be reviewed?

Agreements should be reviewed whenever your business changes significantly, such as introducing new products or services, employing contractors, taking on business partners, changing payment practices or expanding into new markets. Even without major changes, reviewing key agreements every few years is a sensible way to ensure they remain suitable.

This article is intended for general information purposes only and does not constitute legal advice. For advice specific to your circumstances, please contact the team at Rice Craig.