This article has been written by Shubham Singh, pursuing the Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho. This article has been edited by Zigishu Singh (Associate, Lawsikho) and Ruchika Mohapatra (Associate, Lawsikho).
Corporate law’s main goal is to handle all legal and external affairs including litigation, investigations, compliance, mergers and acquisitions, contract disputes, and international trade difficulties. Corporate attorneys are responsible for ensuring the legality of business transactions, representing firms, and providing legal advice to corporate workers. It primarily focuses on how corporations and firms engage with one another both outside and internally through economic transactions and corporate governance.
Corporate attorneys are typically corporate generalists who advise firms on their legal requirements, rights, and responsibilities, as well as provide guidance on company structures and appraise enterprises. To meet their clients’ complex demands, corporate attorneys also collaborate with other transactional lawyers in fields like tax, and real estate.
Corporate lawyers plan transactions, draft contracts, negotiate agreements and attend meetings. A corporate lawyer’s job is to make sure that an agreement’s terms are clear, unambiguous, and would not cause future difficulties for their client in future. They also provide guidance on the roles and duties of corporate executives, directors, and insiders.
Seven agreements every corporate lawyers should know
Every business, from a local trading company to a multinational corporation, needs a contract. The online world has made the process of getting legal documents easier than it has ever been before. Contracts are vital for businesses of all sizes, so it is important to know one’s legal rights. This article includes some examples of contracts that are essential for corporate lawyers to know, as well as some tips on how to go about drafting agreements.
Following are the common agreements corporate lawyers work on:
· Joint venture agreement,
· Non-disclosure agreement,
· Employee agreement,
· Shareholders’ agreement,
· Sale and purchase agreement,
· Franchise agreement,
· Partnership agreement.
1. Joint venture agreement
A joint venture is a financial and technical partnership that takes the shape of projects, acquisitions, or alliances with existing businesses. Indian joint ventures typically include two or more individuals/companies, one of which may be a non-resident, forming an Indian private/public limited company and owning agreed-upon shares of its capital. A joint venture agreement largely governs the method in which the joint venture company’s owners can transfer or sell their shares. Companies, partnerships, and joint working agreements are all examples of joint ventures.
A joint venture agreement is a legal instrument that allows two or more companies to work together to do business or engage in economic activity. The partners agree to form a new business by investing equity and sharing the enterprise’s income, expenditures, and control in proportion to their capital contributions. The partnership might be for a single project or a long-term commercial relationship.
A notable example of a joint venture is Mahindra-Renault, which was created in 2007 and brings together India’s largest car company Mahindra & Mahindra with France’s world-renowned vehicle manufacturer, Renault SA. The contract should express the terms and conditions of the agreement as precisely as possible, and it should be controlled by the laws of the state. Each contract is as distinct as the project and the individuals involved. As a general rule, one should include some of the clauses listed below in their agreement.
- Details of the parties,
- Object and purpose of the joint-venture,
- Contribution and distribution of the parties,
- Distribution of shares,
- Termination and consequences of termination,
- Financial arrangements,
- Rights and obligations of the parties,
- Representation and warranties,
- Dispute resolution,
- Governing law,
- Force majeure,
2. Non-disclosure agreement
Businesses must keep initiatives, creative ideas, and intriguing new products under wraps to maintain a competitive edge, lest they get into the hands of a competitor. Similarly, new businesses with a fresh and profitable idea can only flourish if they keep their plans secret. A non-disclosure agreement, commonly known as an NDA, is a legal contract that keeps such sensitive material under wraps. Within a broader legal document, these agreements may be referred to as confidentiality agreements (CA), confidentiality declarations, or confidentiality clauses.
An NDA is frequently used when sensitive information must be released to potential investors, creditors, workers, consultants, clients, or suppliers—or any other stakeholders who require access to the company’s sensitive information that cannot be disclosed to anyone else.
Confidentiality in writing, signed by all parties, can help to build confidence in these types of discussions and prevent intellectual property theft. The non-disclosure agreement will specify the nature of the secret information in depth. Some NDAs bind a person to confidentiality for an indefinite period, preventing the signer from disclosing the agreement’s sensitive material at any time. Without such a formal agreement, any information given in confidence could be misused or mistakenly made public. The consequences of breaching an NDA are spelled out in the contract and may include monetary damages, lost commercial opportunities, and even criminal prosecution.
Business owners frequently need to share confidential or sensitive information with outside parties. Sharing information is vital whether seeking funding, potential business partners, new clients, or key staff. Non-disclosure agreements have long been a legal framework to retain confidence and prevent essential information from leaking out where it could jeopardise the content’s profitability. Secret recipes, proprietary formulas, and manufacturing procedures are all examples of information that may require NDAs before sharing. Client or sales contact lists, non-public accounting numbers, or any distinctive item that distinguishes one organisation from another are also some examples of protected information.
For example, a corporation may sign into a business cooperation agreement with another company in order to develop a shared product by combining both organisations’ resources and skills. For this collaboration both the companies may need to share their sensitive and important information and if this information gets leaked it may result in major financial loss and lost business opportunities. In this case, a non-disclosure agreement can play a big role in ensuring confidence in both parties to share confidential information.
The information one will need to complete a non-disclosure agreement includes:
· Details of the parties,
· Terms and termination,
· Purpose and objective of the agreement,
· Definition of confidential information,
· Agreed on use of confidential information,
· Exceptions for disclosing the information,
3. Employee agreement
Employee agreements are the typical contracts used in relationships between employees and employers to layout both parties’ rights, responsibilities, and obligations during employment time. An employee agreement, given its function, might be one of the most important documents used by an employer. By ensuring that both parties understand the main elements of the contractual connection, the employee agreement will aid a firm in deepening its relationship with its employees. Typically, an employee agreement is simplified to a regular written agreement that both the employer and the employee must accept and sign. Employers, on the other hand, are not required to transform every employee agreement into a written agreement. Employee agreements are frequently stated verbally or via other activities performed by either the employer or the employee, rather than being restricted to paper. Corporate sanctioned memorandum, company policy, and practice, or employee handbook content can all be used to create implicit agreements.
Employers may use employment contracts to ensure that their most qualified employees are bound by contract terms, which will serve as a disincentive to employees leaving the company and a benefit to the contract.
High-skilled employees can be enticed to join your organisation through employment contracts. For highly skilled employees, the idea of having a contract can provide greater stability. These individuals may have other job offers, so a contract with enticing incentives could entice them to join the organisation. Finally, having an employment agreement offers the employer more control over the job done by the employee who is obligated by the provisions of the contract. The following shall be the essential content of the Employee Agreement-
- Details of both the parties,
- Term and termination,
- Compensation and benefits,
- Terms and conditions governing employee agreement,
- Confidentiality clause,
- Non-compete clause,
- Dispute resolution,
- Governing law,
- Signature of both parties.
4. Shareholders’ agreement
A shareholder is a person who makes a financial investment in the company. He is given a fixed number of shares in the company in exchange for his investment. These shares permit him to become one of the firm’s owners and grant him the opportunity to vote on certain matters concerning the company.
A shareholder agreement is a legal agreement between a company and its investors. It lays forth the rights and responsibilities of shareholders, as well as provisions governing the company’s management and authority. The agreement’s goal is to protect the interests of shareholders, particularly minority shareholders (those who own less than 50% of the company’s stock).
A shareholder agreement’s objective is to settle any conflicts between shareholders and the corporation. One cannot promise that nothing will ever go wrong, but if it does, such agreements can help one resolve issues and preserve a healthy relationship between shareholders and the firm. It also serves to protect a shareholder’s investment and establishes rules and regulations for shareholders and other parties associated with the firm. Since no two shareholders are alike, it is necessary to have a shareholder’s agreement. An agreement must be reached with the awareness that everyone is unique and has diverse perspectives on the themes or problems under consideration, and they may or may not agree with each other. The most important parameters a shareholders’ agreement must include are-
- Name of the initial shareholders
- Responsibility of the shareholders
- Voting rights of the shareholders
- Terms of changing the original shareholders’ agreement
- Determination of how stock can be sold or transferred
- Obligations of parties in the agreement
- Outlining financial responsibilities by the shareholders
- Distribution of dividends
- Developing an exit strategy.
5. Sales and purchase agreement
A seller and a buyer enter into a sale and purchase agreement (SPA) to make the transaction smooth and to legally bind both of them to execute the transaction. Sale and purchase agreements are most commonly used in real estate deals; however, they can be found in any field of business. The agreement is the result of negotiations between the buyer and the seller, and it finalises the sale’s terms and conditions.
Before a transaction can take place, the buyer and seller must agree on the price of the item to be sold as well as the transaction’s terms. The sale and purchase agreement serves as a framework for negotiations. The SPA is frequently utilised when making a significant purchase, such as real estate, or making multiple purchases over time.
It also provides extensive information about the buyer and seller. As discussions progress, the agreement records any deposits made and marks elements of the agreement that have already been met. The agreement also stipulates when the final transaction will take place.
In a nutshell, the common features and provisions of a sale and purchase agreement (SPA) are as follows-
- Details of both parties,
- Agreement to sell and purchase,
- Terms of the agreement,
- Purchase price,
- Risk of loss,
- Warranties and indemnities,
- Warranty of title,
- Governing law and jurisdiction,
- Force majeure.
6. Franchise agreement
A franchisor and a franchisee to establish a legal franchise relationship between them and to ensure that this relationship works out smoothly without any problems or difficulties entering into a franchise agreement. The franchisee is granted the legal right to open a franchised outlet and operation under the terms of a franchise agreement, which includes the licence and right to use the franchisor’s trademarks, goodwill, logo, trade dress, business protocols, procedure guide, and selling the franchisor’s products and/or services. A franchisor’s franchise disclosure document, which must be provided to prospective franchisees prior to offering or selling any franchises, must include the franchise agreement as an exhibit.
The franchise agreement allows the franchisee to specify how the business and branding will be adopted by the franchisee. The consequences for mismanagement or violations of business branding are set in place to ensure that the brand’s image and reputation are always safeguarded. The following aspects must be well-drafted and understood by both the franchisor and the franchisee in a franchise agreement: –
- Details of the franchisor and franchisee,
- Subject matter and purpose,
- Territorial scope,
- Intellectual property rights,
- Post termination use,
- Obligations of franchisee,
- Obligations of franchisor,
- Termination of the agreement,
- Dispute resolution,
- Governing law and jurisdiction clauses.
7. Partnership agreement
A partnership agreement is a legally binding agreement between two or more persons to manage and operate a business and share profits. Partnerships come in several different forms. For example in some partnership businesses, all partners share equal liability and earnings, although, in other partnerships, partners may have restricted liability. In a broader sense, a partnership can be any cooperative venture between two or more parties. Governments, non-profit organisations, businesses, and private individuals may be involved.
In the sense of a for-profit operation performed by two or more individuals, there are three types of partnerships: general partnership, limited partnership, and limited liability partnership. In a general partnership, all participants share equal legal and economic responsibilities. Each of them is directly responsible for the debts incurred due to the partnership. Profits are distributed equitably as well.
Limited partnerships are a cross between general and limited liability companies. A general partner is a partner who has complete personal liability for the partnership’s debts. Another person is a silent partner, whose liability is restricted to the amount invested. The silent partner is usually not involved in the partnership’s management or day-to-day operations.
Limited Liability Partnerships (LLPs) are a popular business form for accountants, lawyers, and architects. This kind of Partnership reduces the personal liability of partners in such a way that, for example, if one partner is sued for malpractice, the assets of the other partners are not put into jeopardy.
Equity partners and salaried partners are two types of partners in some legal and accountancy partnerships. The latter is more senior than associates, yet he or she does not own anything. They are usually compensated with bonuses based on the company’s profits.
The necessary elements of a partnership agreement are as follows-
- Details of parties,
- Purpose and objective of partnership,
- Term and termination,
- Responsibilities of parties,
- Representations and warranties,
- Financial distribution,
- Management, decision-making and binding the partnership,
- Dispute resolution,
- Death and disability,
- Transfer of partnership interests,
- Dispute resolution mechanism.
Legal agreements are a lawyer’s bread and butter. From the moment a person decides to create a company or buy a new house, lawyers are on hand to make decisions, negotiate contracts, and advise them on what terms they should agree to. The legal world is a busy place, and new agreements are being created all the time. As a result, it is critical to understand the most crucial agreements that must be dealt with in the changing time.
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