A business agreement is a contract between two or more business organizations. A contract, as mentioned in the S.2(h) of the Indian Contract Act, 1872, is an agreement enforceable by law. An agreement can be either oral or written and acts as evidence of promises between the businesses.
A business agreement is important to establish the basic rules within which the parties involved in the business will perform their tasks. It allows the parties to go through the terms and conditions of the agreement so that no misunderstanding takes place.
It is used to sell or buy products/services from other businesses.
No businesses coming into the partnership agreement are alike, but some points need to be included in every partnership agreement, which is as follows-
A business agreement format must include the title of the business because it is an essential element since it identifies the partnership and the agreement made in its name.
The names of the parties to the agreement must be explicitly mentioned as the memo sets forth the rights, obligations, and responsibilities of the parties corroborating its joint venture.
The purpose of entering the contract should also be included in an agreement with further details related to business such as payment period, shareholder ratio, etc.
Rights, duties, and obligations of both parties should be well expressed in advance to avoid any disputes in the future.
Duties of the parties to the third parties involved in the agreement should be described.
The contributions of each of the partners in the business must be notably cited. Contributions need not only be in monetary form but also in time, effort, customers, etc.
The business agreement must include the ratio of profit and loss sharing. It should mention that if a company makes a profit, in what ratio should it be distributed amongst the partners’ and the same goes for the loss.
The agreement must include, in-case any dispute arises during the business, a dispute resolution mechanism. There is always a possibility that a dispute will occur and, for the expeditious resolution of the dispute at mutually agrees terms, a dispute resolution clause is necessary.
An agreement must include the tenure of the contract. This clause is important in an agreement because it affects the responsibilities of the parties to one another.
Usually, with the termination of the agreement, the obligations of the parties also terminate. An exception to this is that if any outstanding payment is due or any act which the parties need to perform, it will determine how the parties should handle the responsibility.
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