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What is a Corporate Agreement?

A corporate agreement can be defined as internal paperwork for the company that offers a framework for how a business firm is required to operate within the existing market. According to experts, it works by governing the terms of relations amongst the partners, managers, and the other stakeholders involved in the business. Some of the most significant aspects of a company agreement are voting power and transfer of interest among the members, rights as well as responsibilities of the partners, how profits and losses are to be allocated, the structure of ownership and management, and finally, liquidation and dissolution.

Corporate agreements are very important for businesses as it helps in generation of new revenues and improving market penetration through its access of new markets and consumers. It also outlines the risks related to liabilities and costs across a number of parties. Most of the reputed businesses consider corporate agreements to be a crucial factor for their business due to their operational efficiency with well-defined responsibilities for every single party. It also helps in saving resources as well as time for building expertise and knowledge required for optimal operation in the market. For increasing the market reach of a business, the corporate agreements leverage the unused resources that are shared by the stakeholders.

Corporate agreements offer long-term benefits to a business in evaluating the present as well as the future business trends and leveraging the existing distribution channels and technology of the partners in a business. Moreover, it also provides supplementary business plannings of a company and its partners as well.

Features of Corporate Agreement

Corporate agreements are used in almost all industries and the contract clauses are generally applicable across various sectors. In reality, there are certain clauses used in the agreement that makes their appearances in almost all kinds of corporate agreements that are drafted. Commercial contracts always contain a standardized set of clauses and each of them is discussed below:

1. Jurisdiction

In the present times, cross-border transactions are quite common in both domestic and international terms. When the parties bound in a corporate agreement are situated across a number of states or countries, it may not be able to discern which state would govern the entire arrangement. As a result, commercial agreements clearly specify the jurisdiction that will have control over the optimal running of the business.

2. Resolution of disputes

It goes without saying that even the most thoughtfully constructed corporate agreements are likely to face conflicts. Therefore, it is very important to clarify the plans of the business partners for the resolution of disputes whenever any kind of issue arises. In many corporate contracts, the arbitration clause is included where the parties are required to submit an arbitration for seeking a solution through litigation. This is considered a time and cost-effective means of solving problems though in certain cases, conventional legal recourse is the only way out.

3. Damages

Breaches in the contract are another frequent happening and therefore, as a means of deterring them, clauses related to damages are also added in corporate agreements. Typically, liquidated damages are included in which a predetermined amount will be due in case any of the parties fail to perform. Besides, the court may also order for other kinds of damages beyond the prescribed amount on the basis of the impact of the breach in contract.

4. Triggers for termination

When running a business, things do not often run as desired and therefore, parties may have to leave the contract before its completion. For corporate agreements, this leads to the inclusion of a termination clause. This section within the agreement clearly shows the circumstances under which the concerned parties may have to leave the contract regardless of the tenure left for its completion.

5. Force majeure

This is one of the most important features of the corporate agreement as it shields the parties entering into the contract from issues that are beyond human control. For instance, when there is any natural calamity such as an earthquake or flood or the recent outbreak of COVID-19, a scheduled shipment is ought to be delayed. This clause is crucial for ensuring that failure to perform owing to any unforeseen disruption though it is not any breach of contract.

6. Confidentiality

When two or more business concerns have entered into a contract there shouldn’t be any doubt regarding the exchange of information. As some of the exchanged information can be very sensitive, it is imperative that the contract is bound by a proper confidentiality clause. This clause is very crucial when there is the valuable intellectual property at stake.