Commercial Agreements – Protection for your Business

• Posted onApril 27, 2020

Shelley Bonney discusses some of the important commercial agreements that exist to protect you and your business.

It is commercially prudent in these uncertain times to have a clear set of terms upon which you are prepared to do business with your customers A set of terms and conditions, or “T&C’s” as they are sometimes called, serve to create certainty and clarity as to each party’s obligations and responsibilities, providing businesses with protection in these uncertain times.

In addition, if they haven’t done so already businesses should review their existing contracts both with suppliers and customers to enable them to fully appreciate how Covid 19 may impact on them. WSP solicitors can assist with this and an analysis of the main contract terms. In light of the current circumstances, you may want to look at whether or not a contract can be terminated or re-negotiated, are there operative force majeure clauses or will the doctrine of frustration apply?

Finally, businesses need to make an extra effort to stay engaged with their customers during these tough times, discounts and special offers may help, planning and marketing initiatives may also help to mitigate some of the damage caused to business by the pandemic.

Shareholders Agreements

It is an unfortunate that for some shareholders of private companies, the coronavirus will lead to dispute, disagreement and maybe even death.

So if you’re a shareholder of a limited company how can you try to protect yourself and the company? Generally, the best way for shareholders to control and protect their interests in a limited company is by having a shareholders’ agreement in place. Such an agreement can be entirely bespoke to fit the needs of the shareholders collectively, and as individuals. Shareholders’ agreements can include provisions that specifically set out how disputes between shareholders should be resolved and succession arrangements.

Partnership agreements

Without a solid set of rules to regulate your business relationship with your partners, the outbreak of Covid 19 may prove a testing time. For example, what if someone wants to leave the partnership, a partner dies, or some partners want to get rid of a rogue partner? In the absence of a written partnership agreement, The Partnership Act 1890 determines the rules that govern a partnership.

Interestingly, under The Partnership Act profits are shared equally, regardless of the skill, effort or capital each partner contributes, and all partners have an equal say in any decisions affecting the partnership. The Act also provides that any one partner can dissolve the partnership by merely giving the other(s) notice. Similarly, if one partner dies the partnership is automatically dissolved. Such events may result in severe consequences for the business, especially if the remaining partner(s) wish to continue running the business. Partnership agreements are an essential part of business and a practical means of ensuring the business has strong foundations upon which to transact and deal with the comprehensive variety of fundamental issues that may arise from time to time. Agreeing how to regulate these matters is vital particularly in light of Covid 19.

Personal Guarantees

As a consequence of Covid 19 many companies may be seeking to review their finances.  If you are a director of a limited company that is considering arranging finance in the company’s name such as a business loan or an overdraft facility from a bank or another lending institution then the lender may make it a condition of their support that you, the director, are required to provide a signed, written personal guarantee (PG) as part of any security arrangements. Lenders often require such a guarantee when providing business finance to bolster their security thus reducing their risk. If you are required to give a PG it is important that you fully understand the implications of entering into such an agreement on you personally and the consequences. You will require independent legal advice before executing the document and our corporate commercial team can assist and remote appointments can be arranged.

If you need any further advice on the commercial agreements discussed above you can contact Shelley directly here. You can also contact any member of the WSP Solicitors team by using the form in the sidebar of this page or located here. Alternatively you can call us on 01453 847200

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