An Quick Introduction On The Different Types Of Business Agreements

What are some of the business agreements that we often see in Malaysia? Today, we will briefly share some (but not all) of them.

Sale of business agreement (in a sole proprietorship scenario)

What is the agreement all about?

Such agreement usually involves the buying/ selling of a business (sole enterprise/ proprietorship) from one party to another as well as the buying/ selling of the business’ assets. FYI, the concept of separate legal entities usually does not exist in such a business as the business is usually owned by a lone individual. Therefore, the owner of the business will be personally liable for all debts incurred by the business and the creditors can go after the owner’s personal assets where there is debt due to its creditors.

**What does a potential buyer needs to know?

It is prudent for any potential buyer to do a due diligence exercise before buying any such business and come to an agreement as to what debts (if any) the buyer/ seller will be born once the agreement is formalized. 

Service agreement/ Contractor agreement

What is the agreement all about?

Such agreement is usually entered between a business and a self-employed individual, whereby the self-employed individual (supplier)  provides service to the business (client), such as a contractual agreement, a subcontractor agreement, a freelance contract, a consulting service agreement etc. in exchange for monetary compensation.

**What does a potential buyer needs to know?

The terms of the agreement will usually include but not limited to:

1. What kind of service will be provided by the supplier to the client i.e. the description of the service provided;
2. How long will the service last i.e. the length in which the supplier will provide such service;
3. How and when the payment must be made for providing the service; 
4. What happens in the event of a dispute?

Unlike a contract for service (employment contract), the client does not owe the supplier any employment rights/ benefits as the supplier is expected to pay for these provisions themselves.  

Shareholder agreement

What is the agreement all about?

Such agreement is usually entered between the shareholders of a company and the company to ensure the rights of the company’s shareholder is protected. It usually contains clauses such as: 

1. What rights, obligations, and privileges are granted to the company’s shareholders i.e. pre-emption rights, financing, confidentiality, obligations of the shareholders etc.; 
2. How the company is expected to be run i.e. the appointment of directors, the objective of the company, the managing team etc.; 
3. What are the available resources in the event there is a dispute between the shareholder and the company i.e. what are the law and dispute resolutions machineries available to both parties?

Partnership agreement

What is the agreement all about?

Such agreement is usually entered between (at least) two individuals with the common interest of making a profit decide to come together to carry out a business venture. You will usually see such agreements formed between friends, whereby they:

1. Jointly manage the company; and 
2. Jointly responsible for the partnership’s debts and other liabilities (they could potentially have unlimited liability).

**What does a potential buyer needs to know?

The advantage of entering into a partnership agreement with another individual(s) is that: 

1. In (via) a partnership agreement, the partnership will have a wider capital base compared to that of a sole proprietorship as the partners will pool their capitals and work together in the business that they have set up. 
2. It brings together people with different sets of skills to manage the different aspects of the partnership as compared to a sole proprietor where how you run the sole proprietor is depending solely on the skill sets you have. 

Joint venture agreement

What is the agreement all about?

Similar to that of a partnership agreement, such an agreement comes into existence when corporate entities/ companies come together to pool together their expertise, experience, and resources to achieve a common goal. Briefly speaking, there are two types of joint venture that the parties can agree to go into, namely:

1. An incorporated joint venture, whereby the parties agree to contribute their respective expertise, experience, and resources into the joint venture in return for a certain form of interest in (depending on the agreement) a newly formed via a limited liability partnership/ company.
2. A contractual/ unincorporated joint venture, whereby the parties agree via the joint venture agreement to carry out their respective obligations and whatever profit made is paid directly to each party, based on the amount of contribution of each party.

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