This article has been written by Vaishnavi Krupakaran, pursuing a Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho.com.
Table of Contents
Introduction
A partnership is one of the best ways to expand and start a business, very often an entrepreneur tries to wear all the hats but this leads to a lot of confusion and many times leads to inefficiency in work. It is very important to have a written partnership agreement. The partnership has many advantages and disadvantages but such as increased labour, capital, ideas, vision, and viewing a problem through many eyes. If the partnership is done efficiently it can be very lucrative and successful. Money is one of the key reasons that can strain the relationship therefore it is very important to negotiate the terms of a partnership agreement and track the finances. There may be many points of dispute like handling of employees, dividing responsibilities, bringing and firing employees on board, etc. Hence traveling through these tricky waters is very essential and can only be handled through efficient negotiation. Through negotiation, we can hammer out the differences of opinion and formalize the whole thing. Before delving into the main topic of negotiation of the partnership agreement with food delivery Company we should first understand a few terms–
- Food delivery – a food delivery company is a courier service in which restaurants, stores, cafes have tie-ups with independent food delivery companies that deliver food to customers.
- Partnership agreement – it is when two or more individuals come together in order to generate more profit and manage the business together.
- Negotiation – the act of reaching a dispute through various forms like discussions and agreement to settlement. As we know the basic terms of the topic now lets us try to understand the terms of negotiations for a partnership agreement with a food delivery company.
Draft a written agreement
In order to legalise business, it is always advised to have formal conduct of business. Irrespective of the size of the business it is very important to have a well-drafted agreement, complete the business partnership agreement. This is the best way to prevent any financial and legal disputes in n the future. The next step is to discuss the mutual goals of the business and growth of the business –
The ultimate goal of the food delivery company and the restaurant is customer satisfaction which will directly be proportional to the growth of their respective business collectively and individually. Therefore it is very important for the restaurants and food delivery companies to have mutual goals and the same view of growth and expansion.
Profit ratio
This is one of the prime things to be negotiated, which is how will the profits be distributed and how will the profits be shared based on the ratio. It is also very important to discuss the employment policy –
Example 1:
The delivery partners who would be employed, their qualifications, the average time that would be taken to deliver the food.
Example 2:
The customer service professionals who would be in charge of dissatisfied customers.
All these terms are very important to be negotiated in order to handle situations which might not turn favourably even if one of these people in the chain does not turn out to be a good fit.
Protect the interest of the restaurant owner and the food delivery company
The agreement shall have a clause that shall protect the interest of both the parties and keep the interest tapped for a long-term issue. For example, by putting a simple process ahead of time and making the process fair and simple to protect the interests of both parties.
Beware of the possible conflicts
It’s essential to know your deal-breakers or must-haves to know where you would like to draw off your line before starting off, the best way to fulfill it is by articulating what would want vs what you are willing to give up. It is always told that we should be aware of the dreaded consequences in order to be prepared to face the worst. therefore the possible conflicts which could be aroused shall always be addressed while negotiating.
Example – the profit-sharing ratio. Who shall be responsible and in what manner shall they be responsible in case of a dissatisfied customer, in what manner are the losses going to be split up if the food is returned due to various causes. The next point is an alignment of goal and expansion of business which shall affect both the business. It is very important to address in case of a conflict to a third party and how it shall be handled, for example – arbitration if a dispute shall arise between both the parties.
Promotion and advertisement
It is very important to attract the customers, hence there shall be a huge cost that shall be incurred under the heads of advertisement and promotion. Who shall be responsible if there shall be a coupon code awarded, how are the original rates of the business going to be affected. Who shall bear the offers of happy hours or festive days all that shall be discussed?
The partnership shall include commercially reasonable efforts to engage the parties in cross-marketing and promotional activities like social media engagement, blogs, testimonials, restaurant video features, logo, etc.
Clarify on ownership and goodwill of all the property (physical or virtual)
This point can be elucidated with an example. If a person orders on a food delivery app he trusts the goodwill of the app and the restaurant, under what name is the food being served under the delivery app’s name or under the name of the restaurant that needs to be clearly negotiated.
- For example – when we order food on Zomato and Swiggy we choose the restaurant but that is not the case with few other apps the food is served under their name. The topic of patent, trademark, inventions all shall be clearly discussed as a comprehensive property can bring potential value to a small business. A clear understanding of both parties as to what belongs to whom is essential to negotiate the value of physical and intellectual property and setting up shops on their own. It is important to discuss and set the mutually agreed goals to start with the positives and also to address the conflicts.
Negotiation on dissolution and changes
It is very important to discuss what would be the consequence if the partnership has to be dissolved – along with acknowledging the positives it is important to acknowledge the negatives as well by acknowledging that the partnership might not work, it might fail or some amendments or changes may be needed to be brought in.
The rights and licenses granted
Usually, the delivery company grants licenses to the restaurants and stores especially if they are budding ones, the reputation, and goodwill rise once it’s listed in the delivery company. This needs to be clearly discussed, as a huge part of goodwill and intellectual property rights and proprietary rights come under it. Illegal usage of such rights and breach of agreements shall lead to cancellation of rights by the delivery company and dissolution of the partnership.
Confidentiality
Confidentiality and secrecy are key qualities in a partnership business. There may be processes related to trade secrets, intellectual property business development, etc. which is very important. The non-disclosure agreement should contain what information is confidential and how it should be handled. The limits and purposes for handling the information, the process of enforcing the agreement, and the solution and remedy if such violation occurs.
Tax implications
It is very important to discuss the tax procedure, the tax principle should be taxable on reaping benefits on reaping the benefits of allocation. It is very important to negotiate and make sure that the taxes are taxed independently. The allocation of profits and losses should be discussed clearly and negotiated in order to determine the taxes.
Pricing
The pricing strategy, the percentage which will belong to the restaurant, the percentage of vat which will be charged. What percentage of an administrative fee would be charged. The customer price that would be applicable.
Errors and penalties
In case of errors on who would have the right to determine, whether it would be the restaurant or the food delivery company for fulfillment of reorders. Who would bear the costs associated with rectifying such errors?
Food health standards
The agreement between both the companies that it would pass through all the local tests regulated by the local authorities. If there are any violations with respect to substandard materials being used then there shall be immediate termination in the contract.
Competition
The clause of no illegal soliciting of either of the businesses in the food fraternity shall be accepted.
Service agreement
The responsibilities and the parameters of the restaurant ongoing support of the agreement shall be discussed such as:
Example:
- How shall the restaurant receive orders, maybe via email, app messenger, etc?
- Mutually agree upon the food listed in the menu and the description of the food in the app. Agree with the restaurant’s location and how and when shall it be changed from time to time.
- The time that the restaurant should take to confirm the order.
- How shall the restaurant notify the food delivery company if it is unable to fulfill the order?
- How and by when shall the pickup time be indicated by the restaurant.
Branding and labeling
The companies shall mutually agree to presentations of the food for example with no grease, clear labels. Presentation of boxes in a specific device probably in trays, boxes, etc, the branding logo. The labeling shall contain the name of the order, notes, names.
Law governing and jurisdiction
The agreement shall be binding by the state and central laws of the country and the binding effect shall take place in the jurisdiction it is located in.
Indemnification and liability
If there are any losses incurred by the food delivery company then the restaurant shall be indemnified and visa versa. Probably due to breach of agreement or warranty. If damages cause the death of the party or cause injury in any way. If any loss has been caused due to willful misconduct and or negligence of the food delivery company. The liability of the parties shall be discussed and the type of the liability of the party, for example, whether it’s limited liability of partnership, etc.
Termination and severability clause
Either party shall have the right to terminate but with a notice period given beforehand for example 30 days or 45 days and what shall be the after-effects of the termination – for example, an invoice shall be sent on the date of the termination.
Conclusion
As it is always told that two heads are better than one, so is the case in partnership it can either be traumatic or exciting. The best trick is to lay down a strong and clear understanding of the agreement and negotiate well through well-defined processes and clear goals. These are the steps that should be taken which would surely be worth a pound of cure back.
References
- https://www.posist.com/restaurant-times/cloud-kitchen/cloud-kitchen-setup/partnering-online-food-ordering-platforms.html
- https://www.wsj.com/articles/restaurants-are-arm-twisting-delivery-companies-to-lower-fees-11561282202
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