7 Things To Take Note On Drafting A Business Agreement

When forming a business relationship with someone, it is always best to have a business agreement in place. It doesn’t matter if you are dealing with an individual or a company, a business agreement creates some comfort that the business proposition is going to be taken seriously and be dealt with professionally. A country like Singapore (and various other countries in the world) that follows a derivative of the British Common Law, has a Basic Law of Contract that breaks down the parameters of any agreement.

According to the common law, a business or person needs three things to form a valid contract:
a. An offer by one person
b. The acceptance of the offer by another person, and
c. An agreed upon and mutual exchange of value between the two parties.
We have put together a few basic tips to drafting a Business Agreement. It should be a simple matter to follow these guidelines and put a comprehensive agreement for your business and the other party in place. We are quite confident that by following these guidelines your business agreement will be drafted in a simple to understand, yet all-encompassing and enforceable manner.

The 7 Tips to Drafting a Professional Business Agreement are:

1. Write it down
A verbal agreement is technically legally binding. The problem however is that a verbal agreement is difficult to enforce in a court of law. In truth, there are some situations where they cannot be enforced at all. If you are in business, it is safer to ensure that every agreement made is done in writing. A business agreement in writing is often less risky because you have a written statement that describes each person’s (or party’s) rights and obligations. If there is any disagreement or confusion then the document can be easily referred to and the matter quickly resolved.

2. Keep it simple
Despite what most legal adviser say and do – legal jargon is not at all necessary to make a contract binding. For the clients peace of mind, responsible lawyers now create short and clear sentences within numbered paragraphs and headings. This makes the contract simple for a non-lawyer (the client!) to really understand what the specific clause is saying.

3. Deal with the responsible person – and Naming the Parties
There is no point in dealing with a subordinate who does not have the authority to sign the agreement. This will just waste time and frustrate both parties. It is best to negotiate a business agreement with people of authority from both sides. In a small business this would be the business founder or owner. In a bigger business the person of authority will be the Chief Executive Officer, Chief Legal Advisor or the Chief Operating Officer. Always make sure the person you are dealing with is allowed to make binding commitments on behalf of the organisation. Naming the parties is probably the most important thing you can do. Make sure you get the official, legal and registered names of the parties correct. If you are dealing with a company, the name of the party is the company’s legal name – not the name of the person you are dealing with.

4. Clearly describe the agreements’ details
This the key part of the business agreement. Make sure you clearly describe each party’s rights and obligations.
a. Rights detail what the receiving party is entitled to receive.
b. Obligations details what that party has to do in order to benefit from their rights.
Make sure to include everything that has been verbally discussed. Once the agreement is signed – the following principle applies: “If it’s not in the Agreement – It was Never Discussed”. If you did forget to include something it is a simple matter to include it as an addendum or amendment. Make sure the addendum amendment gets acknowledged and signed by both parties.

5. Describe payment terms
Clarify who pays whom. Also specify the payment schedule and the conditions that need to be achieved before payments can be released. This part should be clearly and thoroughly detailed. If payment is being made in instalments or only upon completion of the work, include this and also detail dates, times, requirements and even the method of payment.

6. Agree on a way to terminate the business agreement should something go wrong
It is also important to clearly set out the circumstance that will allow a party to terminate the agreement. Termination considerations could be:
a. If one party fails to make payment
b. If one party misses a key deadline
c. If one party does not fulfil a specified contractual obligation
Another common clause here is one in which a party is allowed to terminate the business agreement, with an agreed upon notice period. This will allow a party to provide notice of termination, for example 3 months’ notice, to the other party. This notice period allows the effected party to begin making alternate plans without any undue negative impact on their business livelihood or personal situation. Be clear on the recourse options available should something go wrong. Common options here is to provide for arbitration and mediation, instead of court. You always want to avoid court since it is expensive and a once you have given a judge authority to make a judgement, his decision will be final and binding on both parties – even if the judgment goes against you.

7. Confidentiality is vital
In most business agreements, both parties will become privy to confidential information about the other party. It is important that you include a confidentiality agreement that protects both parties. This Non-Disclosure agreement should include mutual commitments that each party will maintain strict confidentiality. It can be a good idea to include a clause which states that the confidentiality extends even once the agreement is terminated.

Follow these 7 tips to drafting a professional business agreement and you should have a simple, concise agreement that protects both parties. However, if you feel that it is getting to complex, or that the agreement has some far-reaching implications – don’t be afraid to consult with a lawyer.

Remember – when talking with a lawyer, specify exactly what assistance you need, and they will be sure to help you get your business agreement back on track.