Business Agreements
Business Agreements Info
If you are a business owner, you understand that agreements can take many different forms. However, there are fundamental principles that should apply to every contract, regardless of its type. Below are key considerations to help ensure your business agreements are valid, enforceable, and suited to your operations.
Initial Considerations
Written Contracts
It is widely recommended that agreements be documented in writing. While oral contracts can sometimes be enforced, written agreements are far more reliable in legal settings. A well-drafted written contract strengthens enforceability, particularly in breach of contract claims, and helps reduce potential risk.
Negotiation
Negotiating business agreements can be intricate and demands close attention. The process typically unfolds in stages, beginning with preliminary offers or term sheets before moving into detailed provisions. Initially, parties often agree on broad terms such as pricing, services, goods, and timelines. Once these are settled, a comprehensive “long-form” contract is created to define all specifics. Contract negotiations may also involve matters like business formation, dissolution, mergers, acquisitions, or equity purchases.
The Necessary Elements Of A Contract
Mutual Consent, Offer and Acceptance
A valid contract requires both parties to enter into the agreement voluntarily, without coercion. There must be a clear offer and an explicit acceptance, along with a shared intention to create a binding agreement.
Consideration
Each party must exchange something of value—such as money, services, or
promises—for a contract to be valid. Illegal consideration cannot form the
basis of a contract. If only one party provides value, the arrangement is
considered a gift rather than a contract, and therefore is not legally
enforceable.
Competence
All parties must have the mental capacity to understand the agreement.
Contracts involving minors, individuals under the influence, or those with
cognitive impairments may not be enforceable in court.
Contracts That Must Be in Writing
Although written contracts are always advisable, certain
agreements are legally required to be in writing. These include contracts
involving real estate transactions and those that cannot be completed within
one year. Depending on jurisdiction, additional agreements—such as high-value
goods sales, guarantees of another’s debt, executor obligations, or prenuptial
agreements—may also need to be documented in writing.
Requirements Under the Statute of Frauds
To comply with the statute of frauds, written contracts must include the
parties’ identities, the exchanged consideration, the terms and conditions, and
the signatures of all involved parties.
Interpretation of Contracts
Contra Proferentem
When disputes arise over ambiguous terms, courts often interpret the contract
against the party who drafted it. To avoid this, drafters can include language
specifying that both parties’ interpretations should carry equal weight.
Types Of Business Agreements
Partnership Agreements
These agreements define the structure and terms of a partnership. They should clearly outline roles, responsibilities, decision-making authority, and voting requirements. They must also address how partners contribute capital—whether through money or labor (known as “sweat equity”)—and how assets will be divided if the partnership dissolves.
Decision Making
When starting a partnership, it is important to spell out the roles and the responsibilities of the partners. Not just the roles, but the voting power that each role has. Some partnerships make majority decisions, while others require unanimity. In addition to defining the role each partner has, a partnership agreement should always specifically state the amount of authority needed to make decisions.
Capital Contribution
Another factor to consider is how the partners will split up capital contributions. Capital contributions can be labor or money. It is important to specifically outline all of the details of the capital split between the partners. This can avoid issues in the future. If the partnership must dissolve, it is more clearly understood how much of the partnership’s assets belongs to each partner.
Shareholder Agreements
A shareholder agreement governs the ownership and rights associated with shares in a corporation. It distinguishes between types of shares, such as common and preferred stock, and outlines rights like voting power and profit distribution.
Operating Agreements
Your operating agreement is the most important document between the owners of your limited liability company. Missouri courts defer to, and are very shy to veer from, the terms of operating agreements. Operating agreements identify the individuals with pivotal roles within company (ex. Chief Executive Officer, President, etc.). They will further identify the voting power of the members in the company and decision-making power of the officers. Ultimately, because Missouri courts rely heavily on the operating agreement, it is important to a) ensure your company has a written operating agreement and b) carefully draft the operating agreement with current and future considerations in mind.
Sales Agreements
Bill of Sale
A bill of sale transfers ownership of property and serves as proof of the transaction between buyer and seller.
Purchase Order
A purchase order obligates a buyer to purchase specified goods at an agreed price and includes terms for payment and delivery.
Security Agreement
These agreements use assets as collateral to secure a loan. If the borrower defaults, the lender may take possession of the pledged asset.
Employment Agreements
Employment agreements should clearly define compensation, benefits, job responsibilities, duration, and termination conditions. Well-defined terms—especially regarding termination—can help protect a business from legal disputes. Employers should also ensure compliance with applicable wage and labor laws.
Service Agreements
Service agreements typically consist of two main components: terms and conditions, and the scope of work. The terms and conditions address items such as confidentiality, intellectual property, and legal protections, while the scope of work details the services provided, compensation, and timelines.
Non-Disclosure, Non-Solicitation and Non-Competition Agreements
Non-disclosure agreements protect confidential information. A non-disclosure agreement may be a standalone document, or it may appear in many other agreements. An example, service agreements may have non-disclosure provisions, so the service-providing party does not disclose information they discover about another party while performing the services. A non-solicitation agreements prevents interference with employees or clients.
Non-competition agreements restrict individuals from engaging in competing business activities after leaving a company. Missouri courts are cautious about enforcing overly broad non-compete agreements. To be enforceable, these agreements should be reasonable in duration, geographic scope, and industry limitations.
Leases
Leases establish the terms for using property or equipment, including rent, duration, maintenance responsibilities, and deposits.
Indemnity Agreements
Indemnity provisions protect one party from losses caused by another party’s actions or failure to act. These clauses often include coverage for legal expenses and are critical in minimizing risk in business transactions.
If you are looking for legal assistance with your internal or external business agreements, or if you would like to speak with an experienced business lawyer, contact us.
Business Law
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Since 1985 Sean O’Gorman and Andrew Sandroni have been representing clients in all areas of the law. O’Gorman & Sandroni, P.C. was founded in 1989 on the principles of honesty, integrity, and the aggressive pursuit of our client’s goals.