Today's highly litigious landscape calls for the careful creation, execution, and management of commercial contracts. From onboarding new partners, clients, and employees to eyeing a possible merger & acquisition, commercial contracts are core in governing business relationships. Each of these business scenarios necessitates distinct commercial contracts.
Read this narrative if you want to linger around commercial contract definitions and their common clauses. Also, the blog highlights modern teams' apparent challenges when managing commercial contracts and how a CLM radiates in with an apt solution.
In this blog, we elaborate on ten prevalent commercial contracts, their merits, and specific use cases. Let's explore.
What are the types of commercial contracts?
Some common-day commercial contracts examples include - loan and finance agreements, settlement agreements, co-founders agreements, corporate lease agreements, advisor agreements, share subscription agreements, letters of intent (LOI), service level agreements, user agreements, contracts for the supply of goods and services, escrow agreements, non-compete agreements, and agency agreements.
Choosing and enforcing the most appropriate commercial contract type for the situation is vital to the long-term success of your business.
1. Joint Venture Agreement
Joint Venture (JV) contracts are agreements between two or more parties for a particular business project or opportunity. JV contracts specify the conditions, terms, and duties to be met by each party during the project. In a joint venture, parties operate in a partnership and not as independent legal entities.
Critical elements of a JV agreement include:
- Purpose of establishing the contract
- Each party's role in the partnership, including technical contributions or commercial commitments
- Meeting schedules and how parties will discuss the project's progress
- Tenure of the partnership
- Note on how to terminate the agreement if need be
Popular use cases
Put JV agreements to effect when:
- Your business would require or benefit from resources that another company supplies
- The partnership aids in reducing the R&D cost of the project
- Expanding your business by creating a more extensive network
- Your business needs assistance developing a novel product, technology, or service.
- Increasing sales or targeting new clients by doubling down on another company's brand or reputation
2. Shareholders’ Agreement
Shareholder agreements define the duties and responsibilities of shareholders, share issuance, corporate operations, and decision-making processes. Also known as the stockholders' agreement, it protects both the entity and the shareholders' investment in that entity.
Benefits
- Ensures that all shareholders are treated fairly, and their interests are protected
- Gives existing shareholders the right to choose outside members as potential or future shareholders
Popular use cases
- While starting a company.
- Issuing the first shares of a company.
3. Business Purchase Agreement
A Business Purchase Agreement (BPA), also known as a business transfer agreement, transfers the ownership from the seller to the buyer of the business entity. Usually, this type of contract contains terms that govern the sale. BPAs can either be stock purchase agreements or asset transfer agreements.
Benefits
- All assets and liabilities can be valued at fair market value
- The transfer agreement outlines the terms that protect the interests of involved parties
Popular use cases
BPAs are essential for anyone buying or selling a business.
4. Supply Agreement
Supply contracts are those in which the seller promises to provide the specified goods or services at a fixed price and for a set period. Here, as part of the agreement, the buyer also agrees to buy those products exclusively from the seller during that time.
Benefits
- Helps lock in the discounted price and other advantages the supplier agrees to provide in any specific period.
Popular use cases
These agreements are often used by procurement departments when working to procure goods and services for their organization.
5. Sale and Distribution Agreement
A distribution agreement, also known as a wholesale distribution agreement, is a contract between a distributor and a manufacturer. It allows distributors to market, sell, and profit from the bulk sales of products from manufacturers or wholesalers. These agreements typically include terms and conditions addressing territories, exclusivity rights, and reporting requirements.
Benefits
- These agreements help move products/services along the supply chain - from manufacturers to retailers to end-users. A third party can sell suppliers' goods to an unexploited region or new clients, meaning suppliers need not make a presence in a new territory themselves.
- A sale & distribution agreement in place gives the victim party a much simpler time in case of potential breaches or violations.
Popular use cases
A distribution agreement is essential for anyone who wishes to distribute the products or services of another company. Typically, the following business types may need distribution agreements: wholesalers, manufacturers, retailers, software companies, beauty products, clothing and accessories, electronics, and brands.
6. Franchise Agreement
A franchise agreement is a contract that legally binds franchisors and franchisees. These contracts outline what the franchisor expects from the franchisee, how the firm must be run, and other specifics. It is a contract whereby the franchisor (firm) agrees to provide the franchisee the consent to use the brand name or company system (individual or entity).
Benefits
- Defines the relationship between franchisee and franchisor
- Offers better control to the franchisor
- Helps in brand management
Popular use cases
Anyone planning to license a business for use as a franchise must have a franchise agreement to operate legally. Traditionally, the following businesses use franchise agreements: retailers, travel agencies, convenience stores, fast food & chain restaurants, financial advisors, healthcare providers, health clubs, and real estate companies.
7. Non-disclosure Agreement
Non-disclosure agreements, or NDAs, are binding contracts that establish a trusting relationship between the owner of sensitive information and the person who will have access to it. If a relationship is confidential, neither party—nor both parties—should divulge that information.
-> Here’s a post that will guide you through the pivotal steps to follow while dealing with NDAs.
Benefits
- Distinguishes confidential and non-confidential information
- Protects patent rights
- Guards sensitive information
Popular use cases
The following five situations necessitate the signing of an NDA:
- When a company agrees to the sale or licensing of a technology or product.
- When teams are negotiating with a new partner or investor.
- When an employee joins or quits an organization.
- When a new client is being onboarded.
- When a company is planning an acquisition or merger.
8. Partnership Agreement
A partnership agreement is an official contract containing the rules and circumstances governing the connection between company partners. It typically specifies the duties or activities that each partner is expected to do in the business as well as their relative ownership interests.
It is possible to form a business partnership agreement between two or more corporations or between two or more people. For instance, an LLC and an individual or an LLC and a corporation may enter into a partnership agreement.
Benefits
- Serving as a reference for dispute resolution
- Stipulate the rights and obligations between the parties
- Define the business relationship
Popular use cases
The purpose of a partnership agreement could be to increase brand awareness, gain access to a new market, or gain a competitive advantage. Another example includes an instance wherein you use a product or a product feature that resulted from a partnership between two brands.
9. Vendor and Customer Agreement
A vendor contract, often referred to as a vendor agreement, is an agreement between two businesses about the exchange of goods or services in exchange for payment. Vendor agreements lay forth the terms of the commercial partnership and specify what each party is expected to perform. Some common types include fixed-price contracts, cash-reimbursable contracts, time and materials contracts, indefinite-delivery contracts, and letter subcontracts.
Benefits
- Help all parties understand expectations in terms of deliverables and payments.
- Mitigate risks by negotiating at the start of the vendor partnership.
Popular use cases
Events like weddings, art festivals, and food markets may use vendor agreements. Additionally, your company depends on several vendor contracts for anything from office supplies to equipment repair and maintenance, internet and phone services, and even the raw materials for your products.
10. Intellectual Property Assignment Agreement
An agreement that specifies intellectual property ownership is known as an IP assignment agreement. IP assignment agreements are frequently used by businesses to both secure their innovations and developments and to transfer ownership of intellectual property when needed.
These assignment contracts are used to transfer intangible assets like copyrights, trademarks, and trade secrets of businesses. The IP assignment agreement, which is also sometimes referred to as an IP transfer agreement, makes sure that the firm may keep the rights to an intangible work that an employee develops on the company's behalf.
Popular use cases
A smooth transfer of IP ownership rights can be made possible through an intellectual property assignment, regardless of whether you are beginning a new business, purchasing product rights, or buying a firm.
Create commercial contracts with SpotDraft
Organizations rely on commercial contracts for everything from simple deals to complex partnerships. These agreements share certain elements but are as diverse as the companies using them. They mitigate risk and build strong, mutually beneficial affinities. The above contracts each have a distinct purpose and objective.
Further, commercial contracts can offer new revenue opportunities, setting your company up for success and paving the way for growth. You can connect the people, processes, and data involved in commercial contracts to execute better agreements and advance your organization.
“The search result, contract repository, standardized template creation, and workflow are a few features that have brought down the efforts tremendously. SpotDraft has read our minds while setting up the platform for our use and hit the bull's eye. The introduction of SpotDraft as a CLM solution in our company helped us get our contracting ducks in a row. The easy-to-use functionalities added with superb customer support and implementation have made this transition a smooth process.”
G2 Reviewer
SpotDraft helps templatize these commercial agreements, eliminating mundane contracting work and giving businesses thousands of dollars back through efficient processes. It removes friction and makes commercial contracts accessible by offering a data-rich repository.
Get in touch to supercharge your commercial contract workflow.
