Contract Law

As a business owner, you make contracts almost every week, whether they’re in writing or not. Offers are made and accepted either in writing, by verbal agreement or by conduct. These are all legally-binding types of a contract, but written ones offer the best protection should any party wish to take legal action following a breach of contract.

Contract law is complex. It is advised that all contracts are made in writing to protect business interests. Written agreements are most likely to prevent lawsuits . However, sometimes contracts are drawn up without proper knowledge of legislation with inappropriate clauses in a contract. Both parties might be unaware of this legislation until a dispute arises.

To remove all ambiguity from your contracts and ensure their terms are clear and legal, consult with ALC’s contract lawyers before you set a deal into motion. Our experts have the ability to prepare contracts in various foreign languages

Other types of agreement can be summarized as follows:

1. Memorandum of understanding (MOU)

An MOU is a written business agreement between parties declaring consensus towards a common agenda and achieving mutual goals. It establishes a business relationship between two or more parties.

‌You can use this agreement when two firms are working together on a project. Some of the issues that an MOU can address include:

• Specified activities
• Funding
• Duration of the MOU
• Roles of involved parties

2. License agreements

Also known as a licensing contract, this business agreement allows other parties to use an inventor’s service or product for a share of the profits. Business owners use license agreements to permit parties to use IP, including copyrights and patents for royalty percentages.

3. Investment agreements

Investment contracts are legal agreements between an investor and a company that protects the investor’s financial investment in the company. These contracts also provide guidance as to how the company shall provide the investor with a return on their investment.

4. Sale and purchase agreements

A Sale and Purchase Agreement (SPA) is a legally binding contract outlining the agreed upon conditions of the buyer and seller of a property (e.g., a corporation). It is the main legal document in any sale process. In essence, it sets out the agreed elements of the deal, includes a number of important protections to all the parties involved and provides the legal framework to complete the sale. The SPA is therefore of critical importance to both sellers and buyers.

5. Commercial agreements

Commercial agreements are typically a contract written between business entities or agreements regulating the business relationship between persons engaged or involved in business with each other.

6. Pledge and Security Agreements

A pledge and security agreement is a legal document that outlines an arrangement in which one party (the pledgor) unconditionally transfers the title to a specific property or asset to another person or entity (the pledgee), who accepts it for safekeeping, usually in return for some form of compensation. In other words, the agreement is typically used to create security interest in equity interests.

A security agreement can also be used when there are two different types of pledges; collateral and chattel. This type of arrangement may arise when the pledged item has value but tends not to be easily liquidated. When someone needs money fast they might opt for this kind of loan as opposed to a standard installment loan because they don’t have anything worth borrowing against at that point.

7. Loan agreements

A loan agreement, sometimes used interchangeably with terms like note payable, term loan  or promissory note, is a binding contract between a borrower and a lender that formalizes the loan process and details the terms and schedule associated with repayment. Depending on the purpose of the loan and the amount of money being borrowed, loan agreements can range from relatively simple letters that provide basic details about how long a borrower has to repay the loan and what interest will be charged, to more elaborate documents, such as mortgage agreements.

Regardless of the type of loan agreement, these documents are governed by federal and state guidelines to ensure that the agreed-upon interest rates are both reasonable and legal.

8. Non-disclosure agreements (NDA)

A Non-Disclosure Agreement (NDA) is a legally enforceable contract that establishes confidentiality between two parties—the owner of protected information and the recipient of that information. By signing an NDA, participants agree to protect confidential information shared with them by the other party. In addition to not divulging or releasing the information without consent, the recipient also agrees not to copy, modify, or make use of the information in any way that is not authorized by the owner.

Cases in which confidential information might be protected through an NDA can include:

• Business models to be presented to a venture group for possible funding.
• Plans for a new tool to be produced by a fabrication shop.
• Information about clients or customers for a specific company.
• Lab workers who have access to test results before patients.
• Embargoed news releases or reviews.
• NDAs are an almost surefire way to confirm that confidential information stays protected in a variety of situations. It’s important to be aware of how these legal agreements work before signing or creating a document, as being well informed can help you make the best legal decisions now and down the road.

9. Supply agreements

A supply agreement is a contract between two parties that details the terms of a purchase of goods from a supplier. These agreements are often used by procurement departments when working to procure goods and services for their organization.

Common Items included in a supply agreement are quantity, quality, delivery time frame, pricing, transportation costs, specifications of product being purchased or sold – basically everything you need to know before buying your supplies.

10. Partnership agreements

A partnership agreement is a contract between all parties involved in starting a partnership structured business. The contract covers the rights & responsibilities of each partner.

When establishing a partnership, the partners should create a written partnership agreement to reduce the potential for conflicts and complications.

Although it’s not mandatory to create your own partnership agreement in the Azerbaijan, it’s highly recommended so that it covers the specifics of your business.

11. Non-compete agreements

A non-compete agreement is a legal agreement or clause in a contract specifying that an employee must not enter into competition with an employer after the employment period is over. These agreements also prohibit the employee from revealing proprietary information or secrets to any other parties during or after employment.

Many contracts specify a certain length of time when the employee is barred from working for a competitor after they end employment. Employers may require employees to sign non-compete agreements to keep their place in the market. Those required to sign these agreements may include employees, contractors, and consultants.

The validity and enforcement of a non-compete vary by jurisdiction and may require the former employer to keep paying the ex-employee a base salary during the non-compete period.

12. Distribution agreements

Agreements which concern the conditions for the purchase, sale or resale of the goods or services supplied by the supplier and/or which concern the conditions for the sale by the buyer of the goods or services which incorporate these goods or services.

Exclusive distribution: In an exclusive distribution agreement, the supplier agrees to sell its products to only one distributor for resale in a particular territory. At the same time, the distributor is usually limited in its active selling into other (exclusively allocated) territories. The possible competition risks are mainly reduced intra-brand competition and market partitioning, which may facilitate price discrimination in particular. When most or all of the suppliers apply exclusive distribution, it may soften competition and facilitate collusion, both at the suppliers’ and distributors’ level. Lastly, exclusive distribution may lead to fore­ closure of other distributors and therewith reduce competition at that level.

Selective distribution: Selective distribution agreements, like exclusive distribution agreements, restrict the number of authorised distributors on the one hand and the possibilities of resale on the other. The difference with exclusive distribution is that the restriction of the number of dealers does not depend on the number of territories but on selection criteria linked in the first place to the nature of the product. Another difference with exclusive distribution is that the restriction on resale is not a restriction on active selling to a territory but a restriction on any sales to non-authorised distributors, leaving only appointed dealers and final customers as possible buyers. Selective distribution is almost always used to distribute branded final products.

13. Franchise agreements

The franchise agreement is the most important document in a franchising relationship because it usually provides the answers to questions that arise such as:

• What fees and payments does a franchisee owe?
• What is the term of the franchise agreement?
• What rights and restrictions apply to using the franchisor’s branding and other intellectual property?
• Does the franchisee have to buy certain equipment and products for the business?
• Does the franchisee have to participate in promotions and local area marketing requirements?
• What rules must franchisees follow if they want to sell their franchised business?
• How should disputes be settled?
• When can a franchisee be terminated?
• What rules a franchisee must follow when the franchise ends?

14. Transfer agreements

A transfer agreement is a legally binding document that conveys ownership from one person or entity to another. Transfer agreements are used to sell real estate, businesses, and other tangible assets as well as intellectual property such as computer code, song lyrics, and industrial processes.

A transfer agreement details the precise property being sold or given away and the money or other consideration the acquiring person or party is paying to take possession. It usually also will include financial terms, each party’s right and obligations, and any limitations on the use of the property being transferred.

15. Service agreements

A service agreement is a company contract between a service provider and your company, outlining the terms and conditions and covering various aspects such as quality, availability and responsibility of services.

A Service Agreement typically includes:

• The description and frequency of the service covered under the contract
• Terms of payment and compensation details
• Responsibilities and obligations of both parties
• Confidentiality and privacy obligations to be followed by your company