In the previous article, I set out some simple concepts of a contract, various forms of contracts (written, oral and implied) and tips for signing a contract. In this article, I will explain the common types of commercial contracts that parties usually enter into in their day to day business.
It usually contains the personal details of the employee, starting date, salary and commission (if applicable). You may add other specifications such as health benefits, grievance procedures, entitlement for vacation and sick leave, etc.
If the job requires the employee to create a new invention or product, you should add a clause on ownership of ideas and inventions.
However, a non-solicitation clause i.e. a clause that prohibits the employee from poaching your other employees to join his business is enforceable.
Contractors are not considered employees of your company, hence they are responsible for filing their own taxes and are NOT entitled to employee benefits such as EPF and SOCSO.
Since they are not your employees, you do not have full control on how the work should be done or the working hours of the contractors, other than those requirements that you have specifically set out in the agreement. Because of this, your obligations as a hirer are much lesser than your obligations as an employer.
Please do not mask an employment contract as an independent contractor agreement to avoid the obligations that an employer should have.
When two or more individuals come together to form a partnership;
It is advisable to have a carefully drafted partnership agreement to set out the terms of the business relationship.
These type of commercial contracts should set out the profit and loss sharing arrangement, the responsibilities of each partner, proper procedures for changes and termination of the partnership.
This is particularly useful when you are at the stage of evaluating a potential business opportunity or collaboration with another party, where both parties want to share confidential information with each other confidently, knowing that they are bound by an obligation to keep it secret.
Some examples of confidential information include client list, recipe, business plan, marketing plan, drawing/design of a product, sales forecasts, minutes of meetings, etc.
These two are the most basic documents that form commercial contracts that every online business should have on their website.
It usually contains clauses that grant users/visitors a right to use website materials, impose acceptable use obligations, limit warranties and disclaim liabilities to the extent allowed under the law.
This agreement is intended to make sure that all shareholders are treated fairly and that their rights are protected so as to protect their investment in the company. It sets out the:
This is to prevent a situation where the relationship between the parties gets worse and they end up fighting for their rights and entitlements because there is no shareholders’ agreement in place.
Although the company’s constitution will help to some extent, a fully considered and well-drafted shareholders’ agreement can act as a safeguard and give you and your fellow shareholders more protection against these types of scenario.
Sam Sdn Bhd has 2 shareholders, (A) and (B). (A) intends to sell his shares to (C), who is a new investor to Sam Sdn Bhd. SPA is an agreement that records the sale/purchase of shares from an existing shareholder (A) to a new shareholder (C) in a private limited company.
After the transaction is completed, (B) and (C) will remain as shareholders and (A) will be out of the picture.
A new investor, (C), wishes to invest in Sam Sdn Bhd. (A) and (B) do not have the intention to sell their shares. In order to bring (C) in, they have decided to increase Sam Sdn Bhd’s paid up capital. (A), (B) and (C) will enter into an SSA, which records the issuance of fresh shares in Sam Sdn Bhd to the new investor (C).
An SPA is signed when there is a transfer of shares from a shareholder to an investor. While an SSA is signed when there is a fresh issuance of shares and all existing shareholders remain in the company.
An assignment agreement is signed when the IP owner transfers all his ownership to a party. Whereas a licensing agreement is signed when the IP owner grants exclusive or non-exclusive permission to a party to use his patent, trademark, software, etc. However, the IP owner still retains the ownership in the IP.