If two or more parties intend to enter into a business relationship it is important to ensure that a clear agreement is put in place at the outset. As well as ensuring that all those concerned are aware of their rights and obligations, having a correctly drafted agreement provides peace of mind and can help avoid potential future conflicts should there be a disagreement or need to end the relationship amicably or otherwise.
There are a number of contractual issues that must be considered. For example, it is important to clearly outline the duration of the agreement, as well as ensuring that the names of all the involved parties are detailed.
At this stage, it is also beneficial to provide definitions of the terms that will be used throughout the agreement, particularly if there are technical or business specific phrases being used. Further, the services or goods that the agreement relates to should also be covered (as is relevant). This may also include detailed schedules or addendums outlining the services and providing key performance indicators or other milestones that can be used for reporting or otherwise. It is important that this area is correctly detailed as it ensures that all concerned parties understand the nature and scope of the agreement and that the intentions of all parties are fully outlined. Other standard clauses include confidentiality, termination provisions and governing law. It is also important that payment provisions are correctly drafted. These provisions cover the payment terms as well as any other applicable payment milestones that may apply.
Common Areas – Partners and Shareholders
There are a number of other issues that should be considered in order to minimise the potential of any disruption. The contribution of all concerned parties must be clearly determined and outlined in the agreement. Part of this relates to the funding of the business; how the business is being funded should form part of how the business is run.
For example, this will have an effect on the management processes and the valuation (both if the business is to be split or otherwise). The agreement should also cover what happens in the event that of death (of either a partner or a shareholder). There will also be specific clauses depending on the nature of the relationship. For example, in the event of a partnership, there should be clauses dealing with partners leaving or being expelled, and what restrictions are in place on partners once they leave.
Similarly, in the case of limited companies, there should be clauses that detail the transfer of shares, situations in which shares must be returned and the process and requirements or new shareholders. There should also be provisions to outline the process in the event of disagreements or financial problems such as liquidation.
Contractual provisions form an important part of UK company law and the business relationship will find it difficult to function without them. It is very important that all concerned parties appreciate and understand the terms of contract, and it is imperative that the concerned parties seek expert legal advice with regard to contract drafting to ensure that there is a reduced chance of misinterpretation, and to ensure that there are clear procedures in place that can be referred to as and when required. Clear drafting can also reduce potential litigation costs which are expensive, takes a long time and often causes reputational damage (as well as other associated losses).
Many of the areas of dispute are easily resolved if they are been properly considered at the outset, and therefore reflected in the contractual terms. An expert can sure that the objectives of the concerned parties are met without using a template document that is not relevant to the business concerned. Unfortunately, disputes in business contracts are fairly common and as is explained here, a claim for damages is often far from straightforward.. A well-drafted agreement can act as both a preventative and pre-emptive measure, and mitigate potential risk. These costs mean that is important that the concerned parties only enter the litigation process as a last resort.
Mediation and arbitration are alternatives that should be considered in the event of a dispute, and these methods are often successfully used in order to reach an understanding without further costs being incurred.