Business Contracts , Faux Pas- Part II- Need for Legitimate, Valid Business Agreements.

Not many understand the need and the purpose of drawing up a valid business agreement or a partnership agreement, or a shareholders agreement in case of a LLC, and like wise. What do we mean by valid? For an agreement to be valid in its execution and terms contained therein, in simple terms , a good agreement must lay out the intention of the parties, clearly along with its boilerplate clauses, and not be a ‘cut-copy-paste’ of any other agreement.

Many partners in business, venturing into new startups, or projects, commit the mistake of using the readymade drafts available online or use a template or just ‘ cut-copy-paste’, and then desire to execute their plan of launching in a jiffy, be it partnership firm and /or a LLC or a FZC.And when problems spring up between parties or businesses then the loopholes in the draft agreements they have entered into, begin to lift their ugly head which entangles their feet, and they find themselves in conflict which later develops into a sour litigation.

Minor squabbles between human beings are but inevitable. Thereby drawing up intention between the parties clearly by way of agreements, and in writing, whilst in commercial trading is a prerequisite. Again this brings us to the point of emphasizing the need of executing valid business agreements depending upon the need and type of structure.

For example, It would be considered a wise move if fiduciary clause in a shareholders agreement or a partnership agreement is clearly worded and in case any of the parties upon whom such a fiduciary duty/right is bestowed, fails to comply with the terms, and defaults then the duties, responsibilities and rights of the alternative partner/party has to be clearly laid out.In many agreements drafted in a jiffy, this aspect is ignored, and when the parties dispute, resolving those disputes, gets tardy. In yet another example should the partner face any disagreement during the subsistence of the agreement, or the fear of misappropriation creeps in, then, any of the partner can intimate the banks of not honoring any financial move from the defaulting partner until further notice. This again points out to the need of drafting the agreements and setting the intentions clear.

A validly drawn agreement will not only aid in smooth implementation, but also aid in easy rescission of contract as well.

To be contd/-

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©Henrietta Newton Martin 2019

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