In principle, the parties to a business cooperation contract (“BCC”) are free to voluntarily commit and agree as long as it does not violate regulations of law and is not contrary to social ethics. Nevertheless, when agreeing and drafting the business cooperation contract, the parties should pay attention to the required contents as prescribed by law. In the following article, TNTP will provide some notes when drafting the terms of the business cooperation contract.
1. Subject matter of the business cooperation contract
The subject matter of the business cooperation contract is the agreement and commitment to recognize the business cooperation to be performed in the contract. The nature of the BCC contract is not to establish a legal entity, so the content of the agreement on “work” as the subject matter of the contract must be specific and clear to limit possible disputes.
2. Objectives and scope of business activities
To ensure that the parties fully and accurately understand the business activities, the business cooperation contract should define the objectives and scope of activities. This clause plays a role in binding the parties’ responsibility for performing business cooperation activities and avoiding the parties misunderstanding the purpose and performing improperly or exceeding the scope of cooperation desired by the parties.
3. Terms of capital contribution and distribution profits from business activities
Performing the obligation to contribute and distribute the profits from business activities is one of the most easily disputed contents in the business cooperation contract. Thus, the parties should agree clearly on this content in the contract.
Accordingly, the parties should agree on the type of property to contribute (money, effort, machinery, equipment, or other property), the ratio and the term of contribution of the parties. If one of the parties fails to perform the contribution obligation, the parties also need to agree on resolutions to handle this issue. For example, where there is agreement on the contribution that a party fails to contribute money on schedule, they must pay interest on the unpaid portion of the amount under the provisions of law and must compensate for the damage.
Regarding the distribution of the business cooperation activities, the parties should agree clearly on the distributing conditions, the division ratio and the term of sharing for each party.
4. Progress and term of contract
The contract should agree on the progress and duration of the contract. That will bind the responsibilities of the parties for business activities as well as related to the termination of cooperation at the end of the contract. Accordingly, the parties should agree in the contract on the specific work to be performed in each stage and the responsibilities of each party for this work.
5. Rights and obligations of the parties
In the business cooperation contract, the parties have common rights and obligations are (i) to enjoy the yield and income gained from cooperation activities; (ii) to participate in decisions involving issues of performance of cooperation contract and co-operation monitoring; (iii) to compensate for damages to other party caused by their faults. In addition, the parties may further agree on their own rights and obligations. Defining the rights and obligations of each party shall reduce disputes and determine the responsibilities of the parties for the cooperation relationship.
6. Capital withdrawal from the business cooperation contract
The capital withdrawal by one member may affect the interests and cause damage to the other party(s) in the contract. Therefore, the business cooperation contract should agree on the capital withdrawal, and the parties should strictly comply with the committed contents to avoid disputes.
If the capital withdrawal is not in the case that the parties have agreed in the contract, the member withdrawing capital is determined to be in breach of the contract and shall be held responsible for their violations.
7. Terms of liability for breach of contract and dispute resolutions
To facilitate the parties when there is any breach of the contract, the parties should agree on the liability for the violations and the resolutions of settlement when a dispute occurs.
Accordingly, the parties may agree on specific sanctions to be applied when there is any breach of contract (such as fines for violations, compensation for damage, …). Regarding dispute resolutions, the parties can agree on the method of dispute settlement such as negotiation, conciliation, arbitration, or court. In case of dispute settlement by arbitration, the parties should agree on the Arbitration Center, the number of arbitrators, the language and location of dispute settlement, etc.
8. Termination of the business cooperation contract
Termination of the contract also means the end of the partnership. The parties may agree to terminate the contract in the following cases:
– The time limit mentioned in the cooperation contract has expired. The parties agree in the contract on the duration of cooperation to carry out business activities, upon the expiration of such time limit, the cooperation contract shall terminate.
– The purpose of cooperation has been achieved. When entering into the contract, the parties determine the purpose of establishing the cooperation contract, if that purpose has been achieved, the cooperation contract shall be terminated.
– Other cases as agreed by the parties. During the performance of a contract, due to the cooperation activities not achieving the desired results or for other reasons, the parties may agree to terminate the business cooperation contract.
In addition to the clauses aforementioned, the parties may agree on other contents as long as it is not contrary to the provisions of law, not contrary to social ethics. Such as confidentiality clauses, non-solicitation agreements, etc.
Above is the content of the article “Instruction for drafting a business cooperation contract”. Hope the above sharing will be useful for those who are interested in this issue.