Seven Critical Commercial Contracts to Consider

Whether you are starting out, or winding down, whether your business is family owned with a niche customer focus or a global company that has a far reaching impact, you need to be making the best and most sound decisions for your business. What are the types of commercial contracts you might need drafted for your business over its life time?

1. Contracts of employment

This is a signed agreement between an individual employee and an employer, establishing both the rights and responsibilities of the two parties, essentially dealing with the working relationship between both parties. It allows each party to clearly understand what their obligations are in terms of employment. Employment contracts will contain detailed information about both the employer and the employee such as full names, company details, addresses, phone numbers and any co-signers who may be involved. It will also contain the Effective Date of the agreement (i.e. the date of commencement of the relationship), duties of employment, details of salary and payment date, details around  termination of employment and the processes involved, as well as possible breaches of  contract;

2. Contracts of lease — commercial and residential

This is a signed agreement entered into when one person (the “landlord”) who gives the use and enjoyment of his/her property to another person (the “tenant”) for a specific period of time in return for the payment of rent. While it is not a requirement for the lease agreement to be in writing, a verbal lease agreement may be difficult to prove if there is a dispute about it. Best to be safe than sorry and leave no room for doubt on any aspect between the landlord and tenant. The lease contains detailed information such as the names and ID numbers of both landlord and tenant, the street address of the property, the rent and other charges that are (or may) be payable, details describing the property and number of occupants, details around the period of the lease as well as what penalties may apply if the tenant terminates the lease prior to the agreed expiry date.

3. Contracts of sale — movable and immoveable property

The most commonly drafted contract is that of a contract of sale. A contract of sale is a legally enforceable agreement between one party who is buying and the other party, who is selling. For a valid contract of sale, the parties must agree on the following three elements (known as the essentialia of the contract),

1. One party must have the intention of buying and the other of selling,

2. The parties must agree on the thing sold (this must be a specific object, or must be at least ascertainable), and

3. The parties must agree on a purchase price, which must be in monetary terms.

Sale agreements contain detailed information about both the seller and the buyer such as full names, addresses, phone numbers and any co-signers who may be involved. It will also list the dates of the initial agreement, type of sale, any deposit paid, dates when other parts of the contract are to be completed, and the date of the final closing of the contract as well as transfer of ownership;

4. Loan agreements

This is a signed agreement between a lender and a borrower. It sets out all the details of the loan, such as the principal amount, interest rate, amortization period, fees, payment terms and any other covenants. The agreement should also outline the rights of a lender to collect payment if the borrower defaults. Every lending agreement is slightly different, it is therefore crucial that you completely understand all of the components of your loan agreement so that you do not leave anything out that can protect you during the lifetime of the loan. Loan agreements contain detailed information about both the borrower and the lender such as full names, addresses, phone numbers and any co-signers who may be involved. Loan agreements also typically include covenants, value of collateral involved, guarantees, interest rate terms and the duration over which it must be repaid. Default terms should also be clearly detailed to avoid confusion or potential legal court action;

5. Partnership agreements

This signed agreement is a legally binding contract between at least two individuals or other legal entities, establishing a unique business enterprise. It essentially dictates the way a business is run and the details of the relationship between each partner, especially with regards to how the partners will share in the profits or losses of the business. The partnership agreement will contain detailed information about partners to the agreement, such as full names, addresses, phone numbers, it will state the purpose for which the partnership is established, the principal place of business and also outline the amount of money each partner invests in the enterprise, Shareholder agreements – this signed agreement is a legally binding contract that governs and formalises the relationship between the shareholders and directors of a company. It is an invaluable document for any business as it provides the foundation for how a company will be run. Any aspect not covered by the Memorandum of Incorporation (MOI) needs to be covered by the shareholders agreement. While every shareholder agreement will differ, they will all generally have the following information - the maximum number of directors and the percentage of shares required to appoint a director; the shareholding of the shareholders; the issuance of new shares, details how a shareholder can sell his shares, details on how to resolve disputes, and what actions will be taken as well as the basic full names, addresses, and phone numbers of the shareholders,

6. Sale of shares agreements

This signed agreement is a legally binding contract that sets out all the terms and conditions which regulate the sale of shares in a company. There are a number of complexities, provisions and restrictions here, especially since you are dealing with a bundle of personal incorporeal rights against a company. These “bundles of rights” are “transferred” by way of cession and it is possible for rights against the company to “transfer” at different stages between the Seller and the Purchaser. Even low-value transactions can trigger, for example, a mandatory offer or may require shareholder approval in some way, and

7. Sale of members’ interest agreements

This signed agreement is a legally binding contract that may be used where a member in a close corporation (CC) is selling his/her member’s interest and claims on a  loan account in a close corporation to a party who is not a member of the CC. It is similar to the sale of company shares. It is used solely where the CC owns a business. The agreement is drafted to cater for a situation where there are remaining members in the CC and also where there are no remaining current members.