In a world where business seems to be the only language people understand, it is very important to always take note of salient business-related issues that can either make business thrive or sail it down to “Golgotha”. One of these issues is Business Agreements.
Without much ado, what does Business Agreements mean?
A Business Agreement is a statement, oral or written, of an exchange of promises with respect to a business concern. For instance, in business, two parties may execute a written agreement/undertaking not to interfere in each other’s business. Alternatively, they may enter into a verbal understanding (usually, management and employees). As long as the business parties are in harmony of opinion, they are considered to have a business agreement. (i)
A Business Agreement is basically any contract formed between two or more business entities/organizations. Technically, most agreements formed between businesses are considered Business Agreements. These can cover nearly every aspect of business practice, from trade to employment, hiring, partnership, confidentiality, and acquisition.(ii)
ORAL OR WRITTEN AGREEMENTS: WHICH WAY?
There is a common error, a common misconception – that for a business contract or agreement to be legally binding, it must be in writing. This is very wrong. Generally, a binding Business Agreement can be made in writing, orally or by the conducts of the parties. A contract made orally with another party, without embodying the particular terms in writing and signed can still be valid and binding.(iii)
It is however safe to note that it is comparatively difficult to prove oral contracts than written contracts. Oral contracts can only be proved based on the memory of the parties or any other evidence. More so, in the event that a party is mischievous, oral contracts is noted as readily available evidence to fall back on, with its high vulnerability to mischief, misunderstanding and errors.
Meanwhile, certain Business Agreements can only be valid in writing. The position of the Statute of Frauds, 1877 is clear that for some agreements to be valid and enforceable, they must be in writing. Agreements falling under this exclusive suite include;
- Contracts for the sale of land or real estate;
- Surety agreements (in which one person guarantees to take over another’s contractual obligations); and
- Agreements that cannot be performed within one year.
Other agreements that must be reduced into writing to be legally binding include agreements “made in the consideration of marriage,” and those made for the sale of goods valued at $500 or more. If the requirements for contractual validity are not met, either party runs the risk of the other party rescinding the contract by declaring it void.(iv)
Importantly however, it is advisable to reduce every agreement to writing in order to be on the ‘safest’ side and avoid unfortunately eventualities. Any business-minded person who is keen on transforming his business into an empire would certainly embrace written agreements.
TERMS AND CLAUSES IN BUSINESS AGREEMENTS
Business Agreements entail terms and clauses which address specific parts of the agreement. The terms set out in such agreements must be accepted by the parties and the most common way to indicate acceptance is through a valid signature(v). In most cases, a signature encompasses anything that indicates the parties’ acceptance, including electronic signatures. It does not actually matter whether the parties read the document or not. If they have signed the document, it is assumed they have read, understood and accepted the terms.(vi)
Clauses in Business Agreements are aimed at defining the rights, duties, privileges allocated to the parties to the agreement. There are some standard clauses which must appear in agreements no matter the type or the mode the agreement is drafted. however, parties to a business agreement may couch clauses to fit into what they desire the agreement to entail, regardless, these clauses are still as enforceable as the standard clauses.
Notable among clauses in business agreements are:
- Choice of Law Clause (choosing the law that would bind any eventual dispute that arises)
- Statute of Limitation Clause (limiting the time frame within which an action can be taken or a remedy can be sought);
- Time of Performance Clause;
- Force Majeure (Act of God or unforeseen eventuality outside the conscious or deliberate doing of either party);
- Indemnity Clause;
- Non-Waiver Clause;
- Severability Clause;
- Settlement of Disputes Clause;
- Confidentiality Clause;
- Liquidated Damages and Termination Clause.
TYPES OF BUSINESS AGREEMENTS
A Licensing Agreement is a written contract by which a property owner permits another party to use that property under a specific set of parameters.(vii)
Licensing agreements delineate the terms under which one party may use property owned by another party. While the properties in question can include a myriad of items, including real estate holdings and personal possessions, licensing agreements are most often used for intellectual property, such as patents and trademarks, as well as copyrights for written materials and visual art.(viii)
Many industries in the business space execute license agreement. It is not new that technology is taking over, its emergence has led to most businesses computerized so as to improve their trade and profitability. Companies that make use of computer software in their operations execute license agreements compared to other companies.
The sole purpose of executing license agreement is to enable a company, make use of the property of another company without fear of being sued for copyright infringement and ultimately sanctioned for it.
NON-DISCLOSURE AGREEMENT (NDA):
Popularly referred to as “NDA”, Non-Disclosure Agreement which is also known as Confidentiality Agreement is one of plethora of important Business Agreements. It is important to execute this Agreement when collaborating with others such as vendors, clients or potential employees, as it protects confidential information that enforces the legal right to sue any defaulting party.
SERVICE LEVEL AGREEMENT
A Service-Level Agreement (SLA) is a contract between a service provider and its internal or external customers that documents what services the provider will furnish and defines the service standards the provider is obligated to meet.(ix)
For a service provider, the SLA is typically one of two foundational agreements it has with customers. Many service providers establish a master services agreement to establish the general terms and conditions in which they will work with customers.
JOINT VENTURE AGREEMENT
A joint venture agreement is an arrangement where two companies develop a new entity to their mutual benefit. It normally involves a sharing of resources, which could include capital, personnel, physical equipment, facilities or intellectual property such as patents.(x)
A joint venture agreement provides a company with expertise it may not have or may not be willing to invest in acquiring itself.(xi)
I have written an earlier article on the nexus between Joint Venture (JV) and Artificial Intelligence. It is important to have a diligent look for proper understanding. Access the article here
A partnership agreement is a contract between partners in a partnership which sets out the terms and conditions of the relationship between the partners, including: Percentages of ownership and distribution of profits and losses, description of management powers and duties of each partner, term (length) of the partnership, how the partnership can be terminated, how a partner can buy his/her share of the partnership.(xii)
In many ways, a business partnership is like a personal partnership. The people involved in both kinds of partnerships need to have clearly communicated understandings. In business, especially, those understandings should be in writing.(xiii)
SALE AND PURCHASE AGREEMENT
A sales and purchase agreement (SPA) is a legal contract that obligates a buyer to buy and a seller to sell a product or service. SPAs are found in all types of businesses but are most often associated with real estate deals as a way of finalizing the interests of both parties before closing the deal.(xiv) An SPA serves as a basis for a transaction to take place, providing a framework for how the transaction will proceed, what is included in the transaction and, if necessary, what is excluded from the sale. However, not only do SPAs dictate the terms of the sale, but they also contain detailed information about the buyer and the seller.(xv)
COMMERCIAL LEASE AGREEMENT
It is no gainsaying that one of the basic requirements for any business is a registered address. However, this is one of the problems that face some businessmen when they want to start business or even expand their business as they may not have a building to use for business, this is where a Commercial Lease Agreement comes to rescue. It is a formal document between a Landlord and a tenant to rent a property for the purpose of doing business. What businessmen are to do is just to look for a commercial property in a location that is favorable for their business, negotiate the rent and reach a compromise, expressly agree to the terms and execute a Commercial Lease Agreement. As earlier discussed in this article, agreements related to real estate must be in writing for it to be legally binding, this agreement must be in writing and executed by the parties involved.
Regardless of how scary loans sound or appears to some people, it is quite inseparable from business no matter the size. As a matter of fact, small businesses take out commercial bank loans for a variety of reasons which includes taking loans to boost its revenue and productivity.(xvi)
A loan agreement is a document between a borrower and a lender that details the loan repayment structure (time frame, mode of repayment, collateral and penalty for failure to repay). It is very important to draft this agreement so as to make the terms of the loan as express as possible and to make it legally binding on both parties.
However, some businessmen fail to execute agreements with respect to loans for reasons best known to them, no matter the reason, failure to execute loan agreements may be catastrophic as a mischievous party may use it to his own selfish advantage.
At this point, there is no doubt as to the preferability of written Business Agreements to any other form of it. It must however be noted that the reduction of an agreement into writing is not the terminus of business fulfillment and relaxation. It is not a couch; rather, it is a hotbed that requires a great deal of business ingenuity, alert and circumspection. Business Agreements have intrinsic complexities which potentially pose far more harm than good to the business if not well managed.
There are quite a number of clauses in business agreements which must be read thoroughly, understood perfectly, taken note of and expressly agreed by both parties before execution. In order to avoid any fragile situation when it comes to business agreements, and forestall unfortunate eventualities that might lead to uncontrollable business crises, it is highly advisable for parties to consult at least, one (1) lawyer to follow through every stage of the business agreement.
(i) Priti Ramjee (2017) Definition of a Business Agreement (online) Available at: https://bizfluent.com/info-8023806-definition-business-agreement.html Accessed on June 3, 2019
(ii) Ken LaMance (2018) Business Agreement Lawyers (online) Available at: https://www.legalmatch.com/law-library/article/business-agreement-lawyers.html Accessed on June 3, 2019
(iii) Ted Schneider, Esq. (2016) Oral Contracts & The Statute of Frauds- Is The Agreement Binding? (online) Available at: https://rstlegal.com/litigation/oral-contracts-statute-frauds-agreement-binding/ Accessed on June 9, 2019
(v) Eugenia Munoz (2018) How Do You Know If You Have a Legally Binding Agreement? (online) Available at: https://legalvision.com.au/legally-binding-written-agreement/ Accessed on June 17, 2019
(vii) Andrew Bloomhethal (2019) Licensing Agreement (online) Available at: https://www.investopedia.com/terms/l/licensing-agreement.asp Accessed on June 17, 2019
(ix) Margaret Rouse (2018) service-level agreement (SLA) (online) Available at: https://searchitchannel.techtarget.com/definition/service-level-agreement Accessed on June 9, 2019
(x) Carolyn Gray What Is a Joint Venture Agreement Between Two Companies? (online) Available at: https://smallbusiness.chron.com/joint-venture-agreement-between-two-companies-23727.html Accessed on June 9, 2019
(xii) Jean Murray (2019) Why Your Partnership Needs a Written Agreement (online) Available at: https://www.thebalancesmb.com/why-your-partnership-needs-a-written-agreement-398401 Accessed on June 9, 2019
(xiv) James Chen (2019) Sales and Purchase Agreement (SPA) (online) Available at: https://www.investopedia.com/terms/s/salesandpurchase.asp Accessed on June 9, 2019
(xvi) Rosemary Peavler (2019) Reasons to Take out a Business Loan https://www.thebalancesmb.com/four-reasons-to-take-out-a-business-loan-393255 Accessed on June 9, 2019
Author: Ayotomiwa P. Olufunso
Ayotomiwa is a legal practitioner in Lagos, he graduated from Obafemi Awolowo University. He is currently serving as an Associate and company secretary in the legal department of Diamond PFC.
He has special interest in corporate law and and real estate. He is passionate about learning and making impact in the legal community. He is an unrepentant Chelsea fan and has an undying love for good music.