It In Writing
an owner/ manager first starts out, the business may look simple
enough. But add a partner or a shareholder, sprinkle in a few
employees, expand your customer base and find yourself needing
to deal with more and more regulations and taxation rules, and
all too soon you realize the need for careful documentation.
business agreements are sometimes founded on a handshake and a
verbal agreement and sometimes a letter of intent, perhaps it is
time to put these agreements in writing. Formalizing the
understandings between the company and its employees, suppliers
or contractors with a written agreement or contract ensures the
terms are clearly defined and avoids misunderstandings that
could be costly. Of course, when you are drawing up any document
that stipulates the terms of agreement between your company and
other parties, it is important to get professional advice before
finalizing the arrangement.
are some agreements that are commonly used in business today and
may be applicable in your company dealings.
confidentiality is addressed in a separate agreement or is
included as a provision in another agreement with an employee,
commission sales representative or consultant, the
confidentiality agreement protects your company's interests,
such as trade secrets, customer lists and other proprietary
consulting agreement sets out matters such as the services to be
provided by a consultant, the duration, and the remuneration.
This agreement is important for clarifying the understandings
between the company and the consultant. It also serves to
establish that the consultant is not an employee for purposes of
withholdings such as Workers' Compensation and income tax.
commission sales agreement sets out the terms of the
relationship between your business and the commission
salesperson that is representing and selling your company's
products or services. Elements of the agreement usually include
matters such as the structure of commission and other
compensation, scope of territory and whether it is on an
exclusive or non-exclusive basis, provisions if the company
supplies a company vehicle, and reimbursement for travelling and
entertainment. A commission sales agreement will also usually
include provisions for non-competition as well as
confidentiality to protect the company's interests. Like the
consulting agreement, the commission sales agreement also serves
to establish that the salesperson is not an employee for
taxation and other purposes.
employee agreement sets out the rights and obligations of the
employee and employer, including salary and other payment
structures, timing of salary increases, hours of work,
arrangements for overtime and vacation time, health and benefit
plans, the person to whom the employee reports, and if
applicable, the provision of a company vehicle. An employment
agreement will often include provisions for non-competition and
confidentiality to protect the employer's interest in areas such
as trade secrets, customer lists and other proprietary
type of contract is essential if your business needs to contract
management to assist with the business. The agreement should
cover such areas as the services to be provided, the manager's
responsibilities, the rate of remuneration and procedures for
billing and payment, and the duration of the contract. In
addition, the agreement should include provisions for
confidentiality and proprietary of business items and an
explicit understanding that all services provided will not
breach the laws, rules and regulations that govern good
stewardship of the business.
and Non-disclosure Agreement
agreement restricts employees, businesses, consultants or
contractors who work with your business from copying or
disclosing your company's processes, confidential information or
trade secrets for a predetermined period or within a specific
geographic area. This type of agreement lets you outsource for
expertise in the development of projects without the fear of
losing your investment in time and money or of having a
proprietary process pirated.
partnership agreement is used when two or more individuals,
corporations or partnerships carry on business or trade for the
purpose of making a profit. This agreement typically sets out
the name of the partnership, the responsibilities of the
individual partners, and provisions for the retirement, death or
expulsion of partners. The agreement may also incorporate
dispute mechanisms, buy/sell provisions, financing terms,
repayment of capital, confidentiality, remuneration,
indemnification rights and a host of other issues depending on
the partners' needs and the business they are in.
shareholders' agreement sets out the rights and obligations of
the shareholders beyond the rights and obligations that are
established by regulations and statutes of the applicable
corporate legislation, depending on whether the corporation is
federally or provincially incorporated. The agreement usually
covers matters such as the amount of issued stock, names of
shareholders and the amount and class of shares that they own.
Other matters include necessary approvals by shareholders,
nominees of shareholders and buy/sell provisions as well as
organizational matters such as the number of directors, name of
the public accounting firm, location of books and records, and
the cap on the indebtedness that the incorporation can incur. As
this agreement protects the interests of the shareholders, no
owner-managed business with more than one shareholder should be
with the Professionals
the working relationship with employees, contractors,
consultants, shareholders and others makes good business sense.
Of course, it is not always possible to arrive at an agreement
that completely satisfies all parties so negotiations may be
necessary in order to find compromises that will work.
make sure an agreement does not disadvantage your business, you
are well advised to involve your chartered accountant and your
business lawyer in the development and negotiating stages. Your
chartered accountant can assist you in determining the current
and long-term consequences for your business and personal
financial planning as well as ensure that you have carefully
considered any tax consequences that could arise.
signing on the line, all parties should get independent legal
and tax advice to ensure they fully understand the impact of the
provisions of the agreement.