By - Aurelia Menezes on October 18, 2022
Have you wondered what makes parties to a business transaction adhere to their promise?
In the fast-growing economy of the present-day era, corporate and growing businesses transactions have increased manifold. To grow such transactions, businesses have often made use of the instrument of contracts. The contracts law in India is one of the oldest laws of mercantile, governed by the Indian Contract Act, 1872.
India, as a developing country, is giving rise to various new businesses and start-ups across the country. The government has introduced several schemes such as Make in India and Start-up India to further increase India’s standing in the global market. Every business or start-up necessarily undertakes business transactions, both unilateral and multilateral, for sales, services, transfer of property, and so on. Any such transaction requires the interested parties to enter into a contract, which may be either a unilateral contract or a bilateral contract.
Any such contract is an agreement that is intended to be legally enforced and specifies the rights and liabilities of the parties to the contract. In case of a breach of contract, the aggrieved party has the right to approach the appropriate court and seek damages or the specific performance of the contract. This way the interests of all the parties are ensured and protected, especially for new and upcoming businesses. There are several contracts essential for growing businesses. This article will first highlight the significance of such essential contracts, followed by a brief explanation of a few of these essential contracts including:
Several contracts are essential for upcoming businesses to secure their interests and achieve their objective. Some of these essential contracts, which are governed by the principles of the contracts law of India, are:
These essential contracts are very important to ensure that the business runs smoothly without any misunderstanding and without accidentally incurring any legal liability in the early phases for the following reasons:
An employment agreement is a contract between the business organization and its employee to avoid any misunderstanding with the employee which could lead to legal liability for the organization.
The contents of an Employment Agreement include:
A Shareholder's Agreement describes the internal management structure of the company and outlines the rights and obligations of the shareholders to successfully safeguard their interests in general. This is a legal document that is primarily a contract between some or all the shareholders of the company.
The general contents of SHA are:
The number of growing businesses and start-ups has significantly stressed the need to regulate business transactions safely and smoothly. Essential contracts that growing businesses should enter into aid in securing business transactions through their certainty, thereby preventing any ambiguity leading to disputes. Further, since these contracts are governed by the contracts law of India, they render a legal identity to all such business transactions.
The age of technology also increases the importance of securing business transactions, with the introduction of new and upcoming forms of contracts such as smart contracts, etc. The advent of globalization has also posed multiple challenges with the increasing number of start-ups with foreign investment etc. Proper contract management, thus, becomes key to regulating and safeguarding the interests of growing businesses.
The 3 common types of contracts used in business are:
1. Employment Agreement
2. Licensing Agreement
3. Non-Disclosure Agreement
Under the Start-Up India Scheme, 2016, the following documents are required for start-ups:
1. Incorporation - Partnership Agreement/Certificate of Incorporation for Pvt. Ltd. or LLC.
2. PAN Card
3. Details about Patent and Trademark
4. Articles of Association
5. Non-Disclosure Agreement
6. Employee Contracts and Offer Letters
7. Shareholders’ Agreements
9. Founder and Co-Founder’s Agreements
Common contracts are business contracts usually encountered in the operation of small businesses. Most common contracts can be categorized into three broad categories:
1. Sale-related contracts
2. Employment-related contracts
3. General business contracts