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The world is moving away from product-based businesses and is pushing into service areas. Indeed, one of the fastest-growing industries in the world is IT. Whether it be development or financial technology, IT is at the forefront of innovation. IT businesses usually based themselves around small teams, and relationships are critical in this sort of environment. Indeed, if you are running an IT business in New Zealand, it is important that contracts underpin these relationships. This article will outline which contracts are essential for your IT business.

What is a Contract?

A contract is an agreement that outlines the rights and obligations of the parties who sign it. Parties use contracts because they are legally enforceable. This means if one party does not uphold their end of the agreement, the other party can seek remedies in court. Usually, these are:

  • damages; or
  • specific performance

Damages are a monetary award given to the party that has incurred any loss because another party has breached the contract. The monetary award is usually equal to the loss incurred. Specific performance is a remedy where the court requires the contracting party to perform whatever obligation the contract originally intended for them to do.

What Are the Essential Contracts for an IT Business?

The main contracts that an IT business should use are:

  • intellectual-property contract;
  • service agreement;
  • non-disclosure agreement; and
  • independent contractor.

This is not an exhaustive list but are the most important contracts that you should be aware of.

Intellectual Property Contract

If you are an IT business, such as a software development company, you will likely be developing intellectual property. Intellectual property is any intangible asset created by human intellect. An example of intellectual property includes a mobile application. However, you must protect your intellectual property. One way you can do this is through an intellectual property contract.

An intellectual property contract will shape how others use your intellectual property. Depending on what the property is, you could allow certain people to use it with your permission. This is called licencing your intellectual property, and usually, you will receive a fee. You could also only allow your intellectual property to be used for a specific event or purpose. Whatever your goal may be, your intellectual property contract will be legally binding if your contracting party breaches the terms of it.

Service Agreement

You may also be providing a service as an IT company. This could be providing a business with payroll management software for a monthly fee. To ensure your client pays the correct amount and on time, you should use a service agreement. 

You and your client will sign a service agreement that will contain all the details of your service. Your service agreement will contain

  • the parties to the agreement;
  • what the service is;
  • the payment amount; and
  • the payment frequency.

A service agreement is important as it means that once both parties have signed the agreement, no one can change the terms unless with the permission of both parties.

Non-Disclosure Agreement

If you deal with intellectual property, you will also want to protect it from any rogue employees. You can do this through a non-disclosure agreement. A non-disclosure agreement will bind your employees depending on the level of protection you want. You can require them not to disclose any intellectual property with someone outside the business, or it can just be that they can’t use that intellectual property for their personal use.

This is an essential contract as some employees may see new intellectual property as an opportunity for them to profit personally. This way, they are bound to only work for the benefit of the company.

Independent Contractor

There may be times where you need a task done but do not want to hire a new employee. For example, you may need a type of code developed that none of your employees has expertise in. One way you can get around this is by hiring an independent contractor. An independent contractor is someone you pay to complete a specific job. Once the contractor completes the job and finalises payment, they move on. This is popular as it allows businesses to bypass having to hire someone. In turn, employment law does not bind contractors.

An independent contractor agreement will outline the terms of your agreement with your contractor. It will show what the service is and how much the contractor is getting paid. This means that if the contractor does not complete the service, you can seek a remedy through court.

Key Takeaways

An IT business needs to ensure they are using the right contracts. Indeed, this is to ensure that legally binding agreements underpin their relationships. Unfortunately, some people do not uphold their obligations, and these contracts will mean you are protected if this happens. In this instance, you are able to seek compensation for any loss incurred.

If you need any legal assistance with contracts, contact LegalVision’s contract lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

Can other people use my intellectual property?

This will depend on your contract and whether you have licensed other people to use it.

What are the penalties for breaching a non-disclosure agreement?

Like any contract, you can take the breaching party to court for breach of contract and seek damages or specific performance.

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