FAQs on Drafting of Agreements and Contracts

• 1) What is an Agreement?

  An agreement is a legally enforceable understanding between two or more legally competent parties.

• 2) What is a Contract?

  A contract is an agreement between two or more persons (e.g., individuals, corporations, partnerships, limited liability companies or government agencies) to do, or to refrain from doing, a particular thing in exchange for something of value.

• 3) What is the difference between an Agreement and Contract?

  An agreement is only one element of a contract. For an agreement to be a valid contract there must be few other elements present as well, like lawful objective and consideration.

• 4) What sort of contracts that can be there in a company?

  There are a various number of agreements that can be there in a company, some of which are mentioned below:

  • Employment Contract
  • Memorandum of Understanding
  • Loan Agreement
  • Non-Disclosure Agreement (NDA)
  • Non-Compete Agreement
  • Service Level Agreements (SLAs)
  • End User License Agreements (EULAs)
  • Shareholding Agreements
  • Franchise Agreement
  • Leave & Licensing Agreement
  • Affidavits & Declarations

• 5) What is an Employment Contract?

  An employment contract outlines the terms and conditions of employment of the employee. It also lists down the rights, duties and responsibilities of each party to the contract.

• 6) What is Memorandum of Understanding (MoU)?

  A Memorandum of Understanding (MoU) is a document in which two or more parties declare their consensus on a common course of action or business.

• 7) Is MoU legally enforceable?

  An MoU is generally binding. However, it is not enforceable in a Court of law, until and unless it involves monetary consideration.

• 8) What is a Non-Disclosure Agreement (NDA)?

  NDA is nothing but a Non-Disclosure Agreement. This is an agreement between two or more parties to uphold the confidentiality of the terms involved in the transaction between them. These are formulated when the contracting parties wish to share confidential information with one another but does not want to involve third party restriction.

• 9) What is meant by Confidential Information?

  Confidential information can be any information which is specific to the parties. It may include business plans, business models, strategies, developing products or a methods, coding and programs, etc.

• 10) Can I sue the other party for breach of NDA?

  Yes, you can.NDA is a legally enforceable document.

• 11) What is Loan Agreement?

  A Loan Agreement is an instrument used to document and outline the terms of a loan between two or more parties.

• 12) What is a Non-Compete Agreement (NCA)?

  A non-compete agreement is a contract between an employer and his or her employee where the employee promises to refrain from competing with that employer’s business, either directly or indirectly.

• 13) What is a Shareholding Agreement?

  Shareholder’s Agreement is a formalized agreement shareholders stating how the company should be operated. It Outlines regulation of the shareholders’ relationship, the management of the company, ownership of shares and privileges and protection of shareholders.

• 14) Can multiple NDAs be signed with same person?

  Multiple NDAs with respect to different subject matters can be signed with the same person.

• 15) Can NDA be accompanied by a Non-Compete Agreement?

  Yes, it can be. In fact, NDAs and NCAs are generally executed together along with the Employment Contract.

• 16) For how long NDA can be executed?

  There is no statutory time limit specified for this. This is fully customizable at the option of the parties.

• 17) Are all non-compete agreements enforceable?

  Many a times, parties to the agreement keep on adding one or more clauses as per their wish. Many a times, these render the contract outrageous. All these clauses are not enforceable. Most courts will simply invalidate the parts in the non-compete agreement that are illegal and enforce the other provisions of the contract.

• 18) How can an employee get “out” of a non-compete agreement?

  If the employee has signed a legal and enforceable non-compete agreement, he is bound by the terms However, most agreements come with settlement clauses and enable the parties to come to a mutual settlement. For eg: employee could offer to pay the employer sufficient compensation in exchange of getting out of this agreement.

• 19) Who are the parties to the Shareholders’ Agreement?

  The parties to a Shareholders’ Agreement are the shareholders of the company.

• 20) How do I register my Shareholders’ Agreement?

  Shareholding Agreement is not filed anywhere. A Shareholders’ Agreement is an agreement between parties just like any other business contract and is used for internal purposes only.

• 21) What doe shareholding Agreement contain?

  A shareholding agreement contains the basic principles that outline the relationship between shareholders. It also outlines clauses relating to the management of company affairs.

• 22) Which clauses should I take care of before signing a Shareholding Agreement?

  One should always take note of the construction and structure of the following clauses before signing a Shareholding Agreement:

  • Business Valuation
  • Liquidation of Existing Equity Shareholding in case of round of Investment is received
  • Drag Along Rights
  • Tag Along Rights

• 23) What is Business valuation clause and why do I need it?

  A Business valuation clause provides a method to determine the worth of your shareholding. This becomes extremely necessary especially at the time of exit of shareholders. This clause is specifically relevant for a private limited company since the shares are not traded anywhere. This clause takes care that no dispute arises with the existing shareholders.

• 24) Who signs the Shareholders’ Agreement?

  Each shareholder must sign the Shareholders’ Agreement alongwith a representative of the company should sign.

• 25) Is the shareholding agreement needed to be notarized?

  It is not mandatory to get the agreement notarized. This has been kept at the discretion of the shareholders and their internal management.