Partnership Agreements
Partnership agreements outline the important terms of a partnership. Your partnership agreement must reflect the special considerations of your particular arrangement. Negotiating reasonable terms favorable to you is particularly important with regard to the following:
Decision Making
When starting a partnership, it is important to spell out the roles and the responsibilities of the partners. Not only the roles, but the voting power each role has. Some partnerships make decisions on majority, while others require unanimity. Thus, along with defining the role each partner occupies, a partnership agreement should always specify the amount of authority needed to make decisions.
Capital Contribution
Another factor to consider is how the partners will split up capital contributions. Capital contributions can be money or labor. Labor contributions are known as “sweat equity.” It is important to specifically outline the details of the capital split between the partners. That way, if there is an issue or the partnership must dissolve, it is easier to understand how much of the partnership's assets belongs to each partner. This is particularly important for partners who solely contribute sweat equity, because, in some jurisdictions, courts do not allow the sweat equity partner to receive money for their services upon dissolution.
Shareholder Agreements
There are many legal considerations involved when creating a shareholder agreement between or among the owners of any corporation. A shareholder agreement outlines and defines the distribution and nature of the shares in a company. For example, the agreement will provide definitions of distinct types of shares in a company and whether some shares give the shareholder broader rights (preferred shares) than others (common stock). Preferred shares can grant shareholders more voting power and entitlement to profits or dividends.
Operating Agreements
A well crafted operating agreement is the most important document entered into by, between and/or among between the members (owners) of any limited liability company. New York courts defer to, and are very reluctant to override or deviate from the terms and provisions of operating agreements. Operating agreements identify the individuals with pivotal roles within company (e.g., Managing Member, Chief Executive Officer, President, etc.). Further, operating agreements will identify and allocate the voting power of the company's members and decision-making authority of the officers. Ultimately, because New York courts rely heavily on an LLC's operating agreement, it is important that every limited liability company has a written operating agreement and that any such operating agreement be crafted with both current and future considerations in mind.
Sales Agreements
Bill of Sale
A bill of sale serves two functions. First, the bill of sale transfers ownership of property. Second, the bill of sale acts as evidence of the contract between the buyer and the seller.
Purchase Order
A purchase order is different from a bill of sale in that it binds the buyer to purchase a good, or quantity of goods, at a certain price point. The purchase order likewise payment terms and delivery date(s).
Security Agreement
A security agreement guarantees an asset as collateral to secure credit. If the debtor defaults on the loan it surrenders the asset to the creditor.
Employment Agreements
It is important to carefully document the employment terms of company employees. Employment agreements should always memorialize the following aspects governing the employment relationship: Compensation structure; employee benefits; duration of employment; grounds for termination; and, roles and responsibilities of employees. Defining the grounds for termination, in particular, will help any business avoid or, at a minimum, defend against, potential employment termination claims. Further, if you are a business owner, it is always important to review local wage and hour laws when determining compensation.
Service Agreements
Service agreements are common in transactions where one party renders a service to another in exchange for monetary compensation. A service agreement usually has two essential components, the first, setting forth the terms and conditions, and the second, setting forth the nature and scope of the services to be rendered. The terms and conditions should also memorialize any ancillary requirements, agreements or protocols, including, without limitation, intellectual property ownership, non-disclosure, non-solicitation, indemnification, choice of law, and similar caveats. In addition to the nature and scope of the services to be rendered, the statement of work should also memorialize the monetary compensation agreed to, the timeline for payment of that compensation, the time frame within which to render the agreed-upon services and similar requirements.
Non-Disclosure, Non-Solicitation and Non-Competition Agreements
Non-disclosure agreements create liability for parties who disclose information they acquire during a period covered by that agreement. A non-disclosure agreement may be a stand alone document, or it may appear in other agreements. For example, service agreements may have non-disclosure provisions, so the service-providing party does not disclose information he/she discovers in the course of rendering the services subject of such agreement(s) to a third-party. Similarly, non-solicitation agreements prevent a party from tampering with the other parties' employees while performing under an agreement and, thereafter, upon completion of that performance.
Non-competition agreements prevent parties from engaging in a certain field of business after they have left a company. It is common to include non-competition covenants in employment and partnership agreements to protect the employer and/or the other partners. In particular, non-competition agreements protect employers who spend resources training an individual who leaves the company or partnership and attempts to engage in the same type of business as the company or partnership. However, in New York, courts are hesitant to enforce broad non-competition agreements. As such, non-competition covenants should limit the time frame, geographical scope and prohibited field of work.
Indemnity Agreements
Indemnity provisions also are commonly included in many types of business agreements. These provisions are in the nature of covenants between or among the parties to hold the other party/ies harmless in case damages arise in connection with the performance, or non-performance, by one party of his/her obligations pursuant to the agreement. Indemnity provisions are invaluable because they protect the non-breaching party/ies from suits which may arise by reason of the acts, conduct and/or omissions of the breaching party.
At Law Offices Stuart L. Melnick, LLC, we can provide you with the legal assistance you may need to prepare and implement your internal and external commercial agreements. Please contact us today to discuss.