How should the conclusion of a contract with a foreign entrepreneur look like?


Progressing globalization has an increasingly visible impact on human life, including the development of business and entrepreneurship. Innovative technologies, the possibility of unlimited contact and access to modern means of transport, allow entrepreneurs to enjoy new opportunities, both in the local and international economy. As a result, more and more companies decide to establish cooperation with foreign enterprises. In this area, however, special care should be taken - concluding an agreement with a foreign entrepreneur may cause many problems, because in the event of a conflict of interest with a foreign contractor, judicial enforcement of your rights may turn out to be very troublesome.

Concluding a contract with a foreign entrepreneur - how to do it?

Bearing in mind the above, it must be remembered that the conclusion of a contract with a foreign entrepreneur must be very well thought out, i.e. it is necessary to agree and negotiate all key issues for a given contract, even before concluding the contract. This is important because an attempt to renegotiate the contractual arrangements at a later stage may become impossible, while pursuing your rights in court - very difficult. In order to protect oneself against unfair trade practices of a foreign contractor, it is necessary to pay attention to the correct structure of the contract and to secure it properly. So what should you be careful about before signing the contract?

Confirmation of the contractor's details

Before starting negotiations, the first thing an entrepreneur should do is to carefully check the potential contractor. All the most important information can be found in special registers of entrepreneurs of individual countries. They contain basic data identifying the company, i.e. the mode of running the business (e.g. type of company), its exact address, information about the partners and representation of the company, the amount of capital, as well as information on the entity's debt, bankruptcy, settlement or debt collection proceedings.

Data in registers are usually supplemented directly by the entrepreneurs themselves, which entails the risk that information about the company will be untrue or out of date. Therefore, it is recommended to confirm these data at the source (the entrepreneur) and compare it with the information available on the Internet (e.g. on internet exchanges, comparison websites, company search engines, etc.).

Negotiations of contractors and statements of the parties

Before commencing the performance of the contract or commissioning it, negotiations with the contractor should be conducted. If it turns out that the terms proposed by the other party are not acceptable, the effort and money spent on preparing the contract will be saved.

At the beginning of the contract, it is worth placing statements and assurances of the parties, i.e. statements of contractors regarding facts, submitted in order to persuade the other party to conclude the contract and guarantee the correct performance of future obligations.

The institution of the preamble is also gaining popularity, it is used especially when concluding complex contracts. The preamble is primarily used to properly understand the intentions, intentions and goals of the parties to the contract, it also has a significant interpretative meaning.

What are the most important elements of the contract?

The most important elements of each contract is its subject, contract completion date and remuneration. In addition, in the case of a contract for the performance of a work or delivery - defining the specification of the goods and their quality. A properly constructed contract should also contain provisions aimed at protecting the interests of the parties in the event of unfair or unfair conduct by one of them. Institutions that can secure entrepreneurs include contractual penalties, guarantees, declarations of submission to enforcement, conditions of suspension and termination of cooperation, as well as the possibility of pre-trial resolution of a possible conflict of the parties.

What's more, it is worth including auxiliary or technical provisions in the contract, making it easier for each party to properly fulfill the contract. Such provisions will certainly be the regulation concerning:

  • principles of incurring costs related to transactions;

  • rules for transferring the risk of loss, destruction or damage to goods;

  • complaints about the performance of the contract and the mode of operation in the event of non-payment;

  • proceedings in the event of deterioration of the financial situation of any of the parties;

  • the rules for the reservation of property rights;

  • rules for assigning rights under the contract.

Establishing the above issues will certainly work to the benefit of both parties. Thanks to them, the contract will become more transparent, and the precise definition of the rights and obligations of the parties will reduce the risk of conflicts between contractors in the future.

It should be remembered that the way of formulating contracts should be unambiguous, transparent and legible. The language used to construct the content of the contract is also important. Too exaggerated formalism, overuse of legal language (e.g. Latin paremas) and excessive clauses on the contract will make it incomprehensible to the recipient, which in turn may result in the entrepreneur signing the undertaking without knowing exactly what he is agreeing to. Therefore, the contract should be as simple as possible, using the language used in a given industry, while in the case of using words or phrases that may cause problems in interpretation, it is recommended to attach a glossary of terms used in the contract to the contract.

Useful clauses and contractual guarantees

The use of safeguard clauses in the contract will be of great importance for the protection of the parties' interests. The most important of them are:

  • Force majeure clause - due to the possibility of extraordinary events of an accidental or natural, i.e. natural, unavoidable nature, it is worth including a force majeure clause in the contract. The application of this clause will allow for an appropriate risk distribution and division of responsibilities between counterparties.

  • Hardship clause - allows for the renegotiation of contract terms in a situation where, as a result of an unforeseen event, further performance of contractual obligations becomes unprofitable for both parties. This clause is helpful in situations where both parties suffer damage to property as a result of various types of external and unforeseen events (e.g. a stock market crash, a global economic crisis, the introduction of an embargo on contract goods in one of the countries, etc.).

  • Confidentiality clause - if the conclusion of a given contract is associated with the possibility of disclosing or making available company secrets, the disclosure of which could have a negative financial effect for one of the parties, the contract should include a provision obliging the other party to keep the business secret.

  • Incoterms clause - concerns the liability of the parties and bearing the risk in international trade. It specifies, among others details of the delivery of the goods: the method of delivery, the guarantee of transport, and the conditions of its insurance. This clause refers to the rules developed by the International Chamber of Commerce in Paris.

The contractual transactions will be secured by various types of guarantees. Among them, the following can be distinguished:

  • Bank guarantee - it is a written commitment of the bank to pay to the beneficiary the maximum amount indicated in the guarantee, i.e. the guarantee sum, if the principal of the guarantee for which it was issued fails to meet its obligations.

  • Insurance guarantee - is a written commitment of the guarantor (insurance company) to pay the beneficiary of the guarantee a certain amount of money, at his request and declaration, in a situation where the debtor does not fulfill his obligations specified in the contract towards the beneficiary.

  • Escrow account - This is a special type of account used for money settlements. It secures the funds deposited by the parties, which are released only when the obligations under the contract are fulfilled. The institution is especially recommended in cases where the parties do not trust each other and want to limit the risk.

What are the legal regulations for contractual obligations?

Conclusion of a contract with a foreign entrepreneur requires the indication of the law applicable to the interpretation of its provisions and the court that will settle any disputes arising therefrom. Specifying the law applicable to a given contract will facilitate, among otherssetting the limitation period for claims, the process of debt enforcement, or the duration of any court proceedings and their costs.

To further facilitate a possible litigation for the parties, it is recommended to include an arbitration clause in the contract that allows the dispute to be resolved in a cheaper, faster and hence more effective manner.

Contract language

Although English is the most widely used language in the world, it is recommended to prepare contracts in two or even three language variants - in Polish and in the language of the contractor, and if it is not English, also in this language. Such a solution will be of great importance when it will be necessary to conduct proceedings before a court of the country specified in the agreement. The wording of the contract in one language may impede the taking of evidence.

Despite the above, in order to avoid problems of interpretation, the parties may agree that the English language version will be binding on them.

Agreement with a foreign entrepreneur - summary

When concluding an agreement with a foreign contractor, there are many elements to pay attention to. The most important issue for an entrepreneur should be whether he is dealing with an honest and reliable contractor. The entrepreneur, before starting negotiations, should first carefully check the future business partner. If the negotiations bring positive results, the entrepreneur should focus on the correctness of the structure of the concluded contract. In addition to its basic, obligatory elements, it is also necessary to optimally secure all issues of interest to the entrepreneur.