A business formation contract is an essential component of any business entity. A contract outlines each party’s rights and obligations. It also makes it easier to resolve any disputes that may arise during the course of the partnership.
Since this contract is a crucial building block for all business operations, it is important that it comes with certain clauses. Here are three important clauses that you need to include:
Identities of the parties to the contract
A business contract must clearly identify the parties to the partnership. The names of the parties to the contract, their contact information as well as their roles should be clearly articulated in the contract document.
Indemnification clauses
An indemnity clause is basically a risk allocation tool. Indemnity is a legal concept that outlines how parties to the contract will compensate each other for losses that are attributable to certain predefined issues. An indemnification clause lets both parties:
- Adjust the extent of the risks they are willing to accommodate
- Protect themselves from damages and potential lawsuits
- Hold each party accountable should something go wrong
An indemnification clause can have a huge impact on both parties. This makes it one of the most heavily negotiated components of the contract.
Dissolution clause
If you include a dissolution and buyout clause in your business formation contract, you will not need to create a separate document should the partnership come to an end. This clause prepares the parties for the possibility that the partnership with one day come to an end. And when that day comes around, the parties will have a clear point of reference when dissolving the partnership.
Find out how you can create a robust business formation contract for your enterprise. Experienced legal guidance can help.