What Agreements Do You Need?

When you’re entering the world of business, understanding all the legal necessities involved can be daunting. When it comes to legal agreements, it is a common question asked among those who are unfamiliar with contract law, and the legal protections of a written agreement.

In this article, we will be going through a few examples of legal agreements necessary to a business.

What is a legal agreement?

A legal agreement is a written document that will identify the parties’ roles and responsibilities under the contract. Once the written document is signed and becomes legally binding. This means that if either party fails to perform the duties under the legal agreement, they are in breach of contract.

Types of legal agreements 

Scope of goods

Each party needs to be clear about the scope and nature of the goods that are being supplied. The supply of goods contract would need to set these out in sufficient granularity and precision.

Details that ought to be set out include:

• Quantity of goods supplied
• Specifications of the goods supplied
• Name of goods

When contracting in the position of the distributor, it is important to examine these details carefully, to ensure that you get exactly the goods you need to fulfil any downstream obligations.

Distribution channels

A manufacturer may specify certain channels (e.g. online stores, brick and mortar retail shops etc.) through which the distributor may distribute the goods.

In this regard, it would be prudent to examine provisions with respect to distribution channels to examine the following:

1. Is the manufacturer’s list of distribution channels exhaustive (i.e. can the distributor distribute goods through channels beyond that which are stipulated in the manufacturer’s list)?
2. Does the manufacturer have a right to change the list of distribution channels?
3. Is the distributor required to source for, and recommend, new distribution channels to the manufacturer?

Marketing

As mentioned in the introduction, apart from general obligations with respect to the distribution of goods, a distributor may also be required to undertake certain marketing obligations, in order to aid the manufacturer’s market penetration efforts.

Issues to examine with respect to marketing provisions may include:

• Whether there is an obligation on the distributor to set aside a fixed amount of money for marketing efforts in the region;
• Whether there is an obligation on the distributor to use marketing material prescribed by the manufacturer;
• Who bears the costs of advertising efforts
• Who determines how many campaigns to launch in any given period

Title/risk

“Title” relates to the legal rights of ownership. A party with “title” in goods has the legal rights of ownership in relation to such goods.

“Risk” relates to the bearing of risk in relation to loss of and/or damage to goods. A party that bears the “risk” in goods bears the risk of loss and/or damage in relation to such goods.

It is important to note that both “title” and “risk” are distinct concepts. “Title” in goods can pass from one party to another without “risk” following suit, and vice versa.

Typically, a recipient of goods would prefer to have “title” in goods as quickly as possible and to receive “risk” in such goods as slowly as possible.

The converse will be true for a supplier of goods, i.e. retain title for as long as possible and pass risk to the customer as quickly as possible.

Product recall

In the unfortunate event that certain safety hazards are detected in the manufacturer’s goods, the manufacturer may be required to recall products to comply with applicable laws.

In this regard, distribution agreements may set out various provisions with respect to product recall. It is thus worth examining provisions with respect to product recall – common issues that are worth focusing on may include:

● Is the distributor required to take steps to assist the manufacturer with recalling products in the relevant territory? If so, what steps is the distributor required to undertake?

● What is the process for initiating a product recall?

● What is the flow of title and risk in products that are recalled, viz-a-viz the distributor and the manufacturer?

Intellectual property license agreement

Over the course of operating the business, you may wish to assign certain intellectual property rights (“IPR”) to the company, or you may wish to procure the assignment of certain IPR from third parties to your company.

This is particularly pertinent where the business is extremely intellectual property intensive, and where certain intellectual property could prove extremely valuable to the business.

As a general rule of thumb, it is good practice for a Startup founder to assign his/her IPR to the Startup, so that the Startup may have the assets required to be a viable business vehicle.

Leasing agreements

At some point, your company is likely to require an office space. Under such circumstances, your company is likely to need to enter into a commercial lease agreement with a landlord.

Landlords will typically have their own standard form commercial lease agreements that you would be required to execute.

It is worth noting that as a Startup in the genesis of its operations, the landlord is likely to be in a stronger bargaining position and provisions in commercial leases tend to strongly favour the landlord.

It will nevertheless be prudent to review the proposed lease agreement that the landlord provides to you, to ensure that you are not short-changed and do not sign up to any extremely onerous obligations.

Service agreement

Where your company is in the business of providing services to third parties, it would be prudent to have your own standard form service agreement. A service agreement sets out the terms upon which you engage your customers.

A service agreement would typically cover matters such as:

• Fees
• Scope of services
• Representations and warranties
• Indemnities
• Unlimited liability and limited liability scenarios
• Termination of the engagement
• Consequences of termination

When preparing your standard form service agreement, you should ensure that the terms in this standard form accord with the level of risk and potential liabilities that you are willing to assume under your engagements.

When it comes to legal basics, it can seem overwhelming at first. But, it doesn’t have to be. GLS offers a host of free Startup resources to help set you on your way. You can also browse our list of over 200 Legal Templates and Tools, to choose the products your Startup needs at each critical stage of business.

We also offer a wide range of subscription based Legal Support Plans created specifically for Startups who want a 360 degree service in creating their own virtual legal dept.

*The above content does not constitute, nor is it offered as, legal advice of any kind. GLS Solutions Pte Ltd is not a law firm and any support provided pursuant to this entity is not regulated legal advice or legal opinion.