“You may work out a perfect business contract but you should not bargain for banana skin which you may slip on while walking towards your partner. The more we try to elaborate a perfectly fool proof method of arranging our lives, the more we find ourselves encumbered with impossible details. That’s the fallacy of too much law. When we provide everything in the law, suddenly you find you can’t move without filling out 300 forms.“
——Allan Watts
Nonetheless, Agreements and Contracts play a vital role in business transactions as these help to outline disclosures, expectations, business relationship and guidance during conflicts and protects interests of parties in an equitable manner.
Here are some common business agreements and contracts:
A Trademark simply provides a unique identity to your goods or services creating a brand imagein the eyes of consumers thereby attempts to gain consumer trust. It prevents usage of any similar mark by any other competitor in the market without legal permission of the owner. Brand strengthening is also possible through a registered mark that also helps gain confidenceof the consumers. There can also be agreements for assignment of Trade Marks or IPRs which needs to be very carefully drafted for preventing misuse.
NDA is another first set of documents that will protect the start-up ventures and safeguard your novel business idea from unauthorized disclosure and exploitation of intellectual property rights. An NDA details out the following:
With global outreach and technical advancement, Foreign Collaborations have become an important driver of growth in the country. Foreign Collaboration Agreement is a contract/ an arrangement between two or more companies from different countries entered for exchange of technical know-hows, technical designs and drawings, training of personnel or other exchange of services for mutual benefit. It requires government approval, taxation aspects and other additional legal formalities. In order to ensure quick processing of proposed foreign collaboration arrangements, Central Government have issued guidelines on this regard.
This contract holds importance when the business is conducted not directly by the company/ entity but through their agents appointed on their behalf to deal with the goods or services of the company/entity. Agency contracts exhibit certain peculiar characteristics of its own inter alia providing for the date of commencement and of termination, scope and nature of the agency, exclusivity, commission, competition (non-compete), liability, reimbursement of expenses, safeguarding of IPRs, etc.
Agreements for Consultants or Consultancy Agreements are generally entered into when any entity intends to engage any person or party for limited period or for a particular assignment and not as a regular employee. There is no employer-employee relationship in this case and the consultant is not typically entitled to the benefits enjoyed by the employees, unless it is specifically mentioned and agreed upon in the agreement. The agreement provides for scope, nature and terms of engagement, fee or other incentives or provision of work etc.
A Partnership Agreement is an agreement between two or more parties intends to carry a business or arrangement in a partnership that is used to establish the responsibilities, and profit and loss distribution of partners, as well as other governing rules about the general partnership, like withdrawals, capital contributions, and admission or retirement or expulsion of partners.
As the businesses in current scenario is not being restricted by the physical presence, to expand visibility of business and widen the customer base, most growing businesses are looking to have their websites and apps to market their start-up and its products and services. Currently, the most valued companies are the one which have strongholds in both offline and online (e-commerce)business as online opportunities are tremendous but with it, the risks for online businesses are also manifold.
Terms of use agreement and privacy policy is intended to be an agreement between the Website or App owner and its user. It includes limitations on how the site can be used complying with the Information Technology Act read with Rules framed there under and with appropriate disclaimers, liability limitations, disclosure on the site’s privacy policy in dealing with customer information, copyright protection warnings, and much more.
Employee contracts are essential to any organization in order to safeguard the employer-employee relationship. Such contracts may include terms and condition of employment (e.g., compensation, role responsibilities, working hours and grounds for termination), reporting structure, expectations, non-compete, required commitments, share vesting and company policies (e.g., vacation days, paid time off the structure, dress code etc.). Considering that huge amount of time and resources go into training and development of employees, such employment contracts can be with or without bonds for minimum continuation of services.
In case of start-ups with multiple founders or founding parties, it becomes necessary for them to sign an agreement that defines the working coordination or relationship of all parties, and form outlines to define boundaries. It is to prevent any conflicts or deadlocks in the future. The agreement should describe the relationship of the founders, provide the probability that all work will belong to some entity in the future and outline a basic communication and conflict-resolution clause that can help prevent disputes.
A Share Purchase Agreement is an agreement between the buyer and seller(s) for purchase of company’s shares. For a business takeover transaction, by purchasing all shares, the buyer gets control over the company, thus he not only acquires company’s assets, but also its liabilities and exposure to risks. Due to this, potential buyers undertake due diligence of such company before making investment.
Due diligence entails analysing the company’s business transactions, permits, licences, authorizations, agreements, liabilities, assets, borrowings, and so on. This aids in comprehending the company’s operations as well as potential liabilities that may occur in the future for buyers.
In addition, the due diligence results might be integrated into the Share Purchase Agreement. Any action that the company or the sellers must do in the near future can be listed. Similarly, any potential liabilities that have been identified can be disclosed, and the sellers can provide an indemnification for the same. In buyer’s interest, such indemnity from Sellers needs to be as exhaustive, descriptive and elaborative as possible for future safeguards.
The Shareholders’ Agreement is a contractual arrangement that specifies the shareholders’ rights and obligations, regulates the management of the company, ownership of shares, limitation on transfers, rights and privileges, voting and various protective provisions for shareholders.
It is usually entered into by the investors with the existing shareholders in case of new investors or between a group of shareholders or joint venture partners before commencing business in the investee company. It seeks to address such issues that may become contentious in future. Unlike Articles of Association, it is binding only on the parties to the agreement.
While drafting such agreements, following clauses should be carefully considered and negotiated:
