There are several types of legal agreements that may be encountered while conducting business, each with various features meant to serve different needs that may arise in business.
In this piece, we look briefly at some of them, considering their main features and what you need to keep in mind if you are involved in any of them at any point in time. This list is by no means exhaustive, but beyond the famed formal contract, we look at a few others which people sometimes do not fully grasp.
These agreements aim to create an enforceable obligation for the parties involved to act or not act in a certain way.
They are meant to set out the terms that must be met by each party in order for the agreement to be fulfilled.
Having concrete understanding of the different agreement types is crucial to ensuring each party’s rights are fulfilled in a commercial transaction, whatever transaction type that might be.
A shareholders’ agreement is a legal agreement that explains, governs, and controls the relationship between the shareholders of a company, its board of directors, and employees. It usually specifies who controls the company, how the company will be owned and managed, how shareholders’ rights may be protected and how shareholders can exit the company.
It is different to the company constitution which is created upon constitution. A shareholders’ agreement is far more strategic and goes to the core of the company’s very being.
Often times, one partner may wish to distribute funds to shareholders on a different time horizon to another. This can cause significant disputes which good shareholders agreements should be able to foresee and put forward a mechanism to deal with.
A licence agreement allows a landlord to permit another party to occupy their property for a set period of time and for a specific purpose.
The key provisions of a licence agreement include the specified licensed area, the term and fee for the licence.
The licensed area must be clearly distinguished, as licences are typically given for areas that are not defined by a clear boundary. The benefit of a licence is that, since it is more flexible than leases, the licensed area can be reduced or expanded easily if both parties agree.
Further, the period by which the licensee is permitted to use the licensed area is important to set out clearly. In most cases, a licence is suitable for short-term arrangements (often less than 6 months). For most licences, the licensee is often required to pay a fee in return for use of the licensed area.
A deed is a special type of binding commitment or promise to do something. The foundation of a deed stems from the need in every community to have a special procedure that publicly indicates the formality of a binding promise that a person intends to make.
As such, people use a deed when substantial interests are on the line, such as when a person passes an interest, right or property.
You will most likely use a deed if you are:
- entering into a non-disclosure deed where you want to ensure that another party does not share your personal information;
- assigning intellectual property between related companies;
- providing a letter of credit or bank guarantee;
- documenting an agreement that you have reached with another party after a dispute; and
- transferring property
A Partnership Agreement is a contract used to govern a business relationship between two or more corporations (or individuals) that are working together. It defines the agreed-upon terms and conditions of the business venture, usually with provisions that include capital contributions, financial reporting, and the numerous responsibilities of each partner.
A partnership is not a separate legal entity, although it must have a tax file number and submit a tax return. Each partner is taxed separately on their share of the profits.
If a partnership is carrying on an enterprise in Australia, it is entitled to an Australian business number.
An employment contract is very effective in codifying the terms and conditions of the employment relationship.
It outlines the fundamental aspects of the employment relationship including employment status, remuneration and obligations.
Setting out employment conditions in writing is likely to reduce the risk of confusion or misunderstanding.
It is useful to have an employment contract professionally reviewed to ensure that the terms are sufficiently clear. Doing so mitigates the risk of unintentionally incorporating unlawful terms.
Asset sale agreements
An asset sale agreement is a contract between two parties that sets out the terms of a sale. The asset can be property, tangible or intangible goods.
This type of agreement covers all the details regarding the buyer and seller, as well as the agreed-upon price for the asset(s) and the terms and conditions of the purchase.
It is effective in ensuring both parties honour their promises and is enforceable in a court of law once both parties have signed the agreement.
We have extensive experience in all the above agreement types, and many others. It is critical to get legal and commercial agreements right, with the requisite legal support to help you ensure you receive your rights and fulfill your obligations.
If you have any questions about different types of agreements, we are always here to help. Call us on (02) 9774 3175 to have a chat about how we can support you.