The use of legally binding contracts is necessary for any company to operate efficiently and effectively while adhering to the law. Sole proprietorships, partnerships, multinationals and government-affiliated corporations have been utilizing a broad scope of business agreements as vehicles to run their operations.
A properly drafted and implemented business agreement benefits the company by reducing the amount of conflict that arises throughout the course of normal business activities. It is also useful for managing company expectations and avoiding or mitigating liability. The standards for responding to issues that may arise can be found in its agreements and contracts.
There are numerous types of business contracts to accommodate a wide variety of situations, objectives and transactions. In this post, we will examine 11 types of agreements that are commonly used in the day-to-day running of a business.
If you are starting a business with one or more parties, you should all land on the same page and have a clear understanding of how the firm will run from the beginning. A partnership agreement is the optimal legal document for this purpose. A partnership agreement is a contract between two or more individuals who would like to manage and operate a business together to generate profits.
This agreement stipulates the partners’ roles and obligations, outlines the ownership stake in the partnership and determines the profit and loss distribution of each partner. Other important rules about the management and conduct of the partnership are also included in the key contents of a partnership agreement.
Non-disclosure agreements are ubiquitous in corporate settings where sensitive and confidential information needed to be exchanged and disclosed in the course of business. It provides business owners with legal remedies if any of the parties involved in the organization disclose trade secrets or sensitive information to a third party.
This agreement is helpful when all parties to a transaction recognize the importance of maintaining confidentiality. When parties sign an NDA, they agree to enter into a confidential relationship to safeguard the information described in the NDA. Breaching an NDA often subjects the party to a civil lawsuit.
This contract is signed by the employee and the employer and outlines the terms and conditions of employment. This generally includes crucial information about the employment and establishes what both parties expect from each other when the contract commences.
The key important clauses that are included in an employment agreement are responsibilities and duties of both employer and employee, compensation, salary and bonus package, the duration of the employment and grounds for termination.
An indemnity agreement is a contract that protects one party of a transaction from the risks or liabilities caused by the other party of the transaction. It is also often known as a release of liability or waiver of liability agreement.
An indemnity agreement is useful whenever one or both parties to the contract are engaging in activities that expose them to risk, as it allows for the transfer of that risk to the other party. This agreement shields the indemnified party from any claims, damages or lawsuits brought by unrelated third parties. The following are examples of risky business deals:
An independent contractor agreement is an enforceable contract between an independent contractor and their client outlining the conditions under which the contractor will perform the contracted work. If your business need to hire someone without the need to permanently employ them, this agreement will be handy. It prevents misunderstandings about an individual’s employment status, tax liabilities, and compensation for the job and it safeguards and maintains all parties responsible for the completion of the agreed job.
As most independent contractors typically work on a single project for their clients on an as-needed basis, this agreement specifically defines the work to be performed, who is obligated for it and when it must be completed and delivered.
Non-compete agreements are contracts that prohibit an employee from engaging in certain business activities during and after the course of their employment. Pursuant to the terms of the non-compete agreement, the employee is prohibited from engaging in direct or indirect competition with the company for a specified period of time following the termination of their employment.
A non-compete clause may forbid an employee to do the following:
Joint ventures are often confused with partnership type of business, however, the primary difference between the two is that a joint venture is used for one single business activity for only a specified period whereas a partnership is a long-term relationship in a business. The parties to a joint venture agreement are those who share commercial objectives and agree to pool their resources to attain those objectives. Both large and small businesses can join forces through joint ventures to complete larger projects that either could manage on their own.
Although a written contract is not required by law to establish a joint venture, it is highly recommended to do so to ensure that all parties are dedicated to the partnership and understand their roles and responsibilities.
At a minimum, your joint-venture agreement should contain the following information:
When an asset or piece of property is pledged as collateral, having this type of agreement gives the lender a legal claim on that asset or piece of property. Creditors are often reluctant to provide credit to businesses without the execution of a security agreement, therefore security agreements are integral aspects of doing business. Borrowers secure loans by providing collateral to the creditor, which the creditor can then sell or dispose of if the borrower defaults on the loan.
Financial covenants, repayment schedules, and insurance coverage stipulations are prevalent in a security agreement. Executing this agreement will act as a binding contract that sets forth all of the circumstances under which debt can be secured and remedies available if the debtor defaults.
A franchise agreement is a contract between the franchisor (the party that has developed a successful business model and wants to branch out via franchising systems) and the franchisee (the party that wishes to start a business using the franchisor’s model). Through this agreement, franchisees are granted permission by the franchisor to use the franchisor’s trademarks, trade secrets, brand names and other proprietary business information to operate a franchised business.
A franchisee’s obligations and promises to the franchisor for using the franchisor’s brand are spelt out in this contract. Franchise agreements benefit both parties by outlining what each is committing to in terms of business operations, quality control measures, fees to the franchisor and dispute resolution procedures.
An agent is a person who carries out work on behalf of a principal. The principal is the individual or organization that employs the agent to carry out certain jobs or projects on their behalf. By entering into an agency agreement, the agent agrees to undertake the project and the principal agrees to delegate certain obligations to the agent so that the agent can act on behalf of the principal under the specific circumstances outlined in the agreement.
The use of agency agreement can be considered in the following situations:
A shareholder agreement specifies the operation of a company and controls the relationship between the company and its shareholders. This agreement is intended to protect all shareholders and outlines the rights and responsibilities of both majority and minority shareholders and guarantees that they are treated fairly.
It is the basis upon which the company is established, as it specifies in detail how the business will be managed and issues between the shareholders will be resolved. A solid and successful shareholder agreement will include the duties of shareholders, voting rights, how stock can be sold or transferred, and the distribution of dividends at the end of each fiscal year.
We have previously discussed the top reasons why you need to have a proper shareholder agreement here.
