A business agreement is entered into or created by parties who are desirous of entering into a business relationship to accomplish a specific task or business goal while retaining their separate identities.  Parties to a business transaction negotiate terms and conditions of their transaction and execute a formally binding agreement to set out the rights, obligations, and relationship of the parties prior to the performance as it reflects the understanding of parties.

An example of a form of business agreement executed between parties is a Memorandum of Understanding. There are varying reasons why individuals and corporate entities create a Memorandum of Understanding, it could be for the purpose of accessing a new emerging market, to gain profits margins by combining their assets and operations, accessing skills and capabilities, or to share risk for major investments or projects.

There is also a Joint Venture Agreement where parties have shared ownership, shared governance, shared profit returns, and risk. For individuals, where two or more persons come together to form a temporary partnership or joint undertaking for the purpose of performing a particular project that partnership can be called a Joint venture Contract.

A business agreement can also be in form of a partnership agreement, sale and purchase agreement, and commercial lease agreement.

A business agreement is duly required when express and implied terms and obligations have been agreed upon by parties, it is important for the smooth operation of the business transaction. It also guarantees clarity on the purpose of the business agreement. There is no specific format for which a business agreement is drafted; however, there are salient terms that form the basis of the agreement.

The structures for which business agreement are drafted are;

  • Full details and particulars of parties to the business agreement which can also be inclusive of any sub-agreement arrangements, so it is evident who is responsible for performing obligations under the agreement.
  • The term duration of the business agreement is the date of commencement of the agreement and its duration which is subject to the agreement of parties.
  • Definition of any key terms to be used in the business agreement.
  • The full description of the services or goods to be provided or received in the course of the business arrangement or the rights and obligations of each party.
  • The payment details and date, which includes interest owned by parties to the agreement, installment, or methods of payments should also be clearly stated to avoid disagreements
  • Profits and expenses, the net distribution of profits, losses, and disbursement to be borne out of the business agreement.
  • The powers to be exercised with the consent of the parties (where applicable).
  • Confidentiality clause especially where sensitive ideas, knowledge, information, and resources are shared that are confidential and not privy to a third party.
  • Dispute resolution clause is also an important clause that must be included in a business agreement in the eventuality of disputes likely to arise, the means by which it will be resolved by employing the dispute resolution mechanism of arbitration, mediation, or negotiation instead of going to court.
  • The termination clause is also an important element found in the business agreement stating the terms and circumstances of determining the business relationship and the manner of distributing proceed upon determination of the contract.
  • The governing law of the business agreement should be stated, especially if the parties are located in different states, parties can negotiate on the state’s law that will apply to the agreement.
  • Any special terms and conditions to be agreed to by parties.

Finally, parties to a business agreement can either be individuals or corporate entities. It is important that the terms and obligations are documented for it to be enforceable.

Before entering into any business agreement, it is advisable that a business lawyer is engaged to review or analyze the agreement to ensure it meets all standard legal requirements.


By Corporate & Commercial Law Department, Resolution Law Firm