To be a good commercial lawyer, you have to have a deep understanding of commercial contracts. You must be able to grapple with complex commercial motives, business risks, reward mechanisms, unforeseeable exigencies and predict how a contractual relationship may play out in the future.
Not only you must be able to draft bulletproof contracts, but negotiate them and at times lobby for your client. It is a no-brainer that you must get very good with contracts if you wish to succeed as a commercial lawyer.
However, today I will tell you about 10 specific contracts, without mastering which you will probably not even make it through the door of a self-respecting law firm or in-house team. If you do, you may have a serious performance problem unless you do something to catch up.
These contracts are the bread and butter of most commercial lawyers and sort of the very basics. If you can’t handle all of them, time to tighten up your belt and start learning.
Before we proceed with the 10 contracts and explain to you why exactly they are indispensable and what makes them stand out, let me tell you how I made this list.
Nobody has unlimited time to learn. I wanted to identify the 10 most important contracts that one must learn while they are still students, or at the beginning of a career in corporate law, in order to record above average performance at work or stand out at a job interview.
That is why when deciding what contract templates we should cover in our Contract Drafting and Negotiation Course, I had to come up with a list like this. For the same reason, we have included these agreements and negotiation techniques in great details in our business law diploma course as well.
To be honest, no business law course can be complete without teaching these 10 critical contracts in my opinion, though none of the law schools really teach any of these at all.
I hope that reading this article will be an eye-opening experience for you, and you will get a direction in preparing yourself for a career in commercial laws. To begin with, download some sample templates of these agreements from Google.
Go through various clauses and try to understand what purpose they serve. If you need systematic help to develop expertise on these agreements, check out some of our online law courses.
If you do not agree with this list and believe that I have missed out on an important one, please hit reply/comment and let me know.
1) Employment/consultation/work-for-hire Agreement
You need a workforce to run any business. It is critical for modern businesses to enter into watertight contracts with people who work for them. These contracts are easier at a level as they are rarely negotiated but still requires a great understanding of challenges that employers face such as attrition, theft of intellectual property and dereliction of duty or sub-optimal performance by employees.
Apart from employees, people may be working as consultants and independent contractors too. There can be simple forms that people sign without negotiating or complex agreements for senior level people whose agreements are negotiated like an investment deal.
Every organization needs people who can draft and then help to implement employment agreements. If you are good at it, your skills won’t go unnoticed either in a job or in the interview. However, if you can’t answer conceptual questions about an employment agreement, it will show your legal skills in a terrible light.
However, I am not yet aware of any law school that dedicates even a single class to teaching about employment agreements. So watch out, make sure you are not caught off guard.
2) Joint Venture Agreement
Joint ventures are collaborative arrangements where parties involved have to share costs, management, and profits. You must be familiar with many famous joint ventures. Take the example of Starbucks India for instance. Starbucks USA launched it as a joint venture with the Tata Group in India.
There are also many examples of joint ventures gone wrong, such as Walmart and Bharti group which had launched in India through a JV. Even Mcdonald’s Corp. entered India through two JVs, one with Connaught Plaza Restaurants Ltd in North and East India, while the entered the South Indian market through a JV with Hardcastle Restaurants.
Notably, after many decades of successful operation of the JV, in 2017 the JV in the North with Connaught Plaza ended in a bitter legal spat. Mahindra and Mahindra ended a joint venture with Renault in India in 2017 for business reasons.
Evidently, while JVs have many inherent advantages, there are many a pitfall that JVs can lead to.
As a commercial lawyer drafting a joint venture contract, you have to take into consideration any and all arguments or concerns that might arise over control of the project or the rapid loss of capital that happens in these projects without optimal output.
You have to negotiate to make sure your client is not left hanging dry halfway through the process as a result of this.
Successful joint ventures offer great rewards to the parties concerned, but the ones that fail cost them a lot of time, money and frustration. Sometimes, even certain intellectual property rights are at risk.
As a lawyer, your duty is to draft a contract that protects your clients from these circumstances down the road and negotiate to avoid unnecessary counterpoints and litigation that might hamper the profits or the reputation of the venture.
Thus, you need to create an airtight contract that clearly states how each participant is responsible for the profits, losses, and costs associated with it, along with the obligations, liabilities and failure to follow through with set regulations clauses. Always make room for a plausible exit strategy.
Many lawyers make a career out of drafting and negotiating joint venture contracts. Even if you are not going to specialize in JVs, you are likely to frequently encounter high profile joint venture agreements.
After all, these contracts are responsible for generating a lot of revenue for your client, and in turn, your firm and you. So be prepared, a well drafted and negotiated joint venture contract may be the turning point of your legal career.
3) Terms and conditions for using a product or a service
Terms and conditions are ubiquitous, you encounter them every time you try out a new product or service. Every time you open an Apple product, you might notice that there is a plastic packet with a sticker that says by tearing open this plastic you agree with the software agreement!
You probably click on I agree countless times as you surf the internet or download apps. If you apply for any membership, or a sim card or gas connection, you have to agree to terms and conditions. Evidently, these are probably the most common legal documents around us.
Naturally, every time a new product or service is launched in the market, someone has to draft the terms and conditions for the same! There is a lot of well-paid work around this for lawyers in the market, but very few lawyers really understand how to draft these terms and conditions.
It is definitely one sort of agreement you will be frequently expected to draft if you practice as a commercial lawyer, whether as a corporate in-house counsel or a law firm lawyer.
4) Service Level Agreement
While terms and conditions are the staple when it comes to selling a product or services to the mass, when you sell the same to a big corporation, government or any other big buyer, you need to enter into service level agreements.
These agreements are often drafted for IT firms, Consultancies and Service Providers of one kind or another. If you are looking to make it big, these are the kinds of clients that you and your law firm would want, as they deal with an insane number of third parties and in turn provide more business for you.
You have to draft a contract that clearly states the working relationship between two or more parties for a service. You have to make sure you elaborate over the optimal level of service to be expected without leaving your service provider open to claims of misrepresentation or breach of contract.
Clearly defined pointers make sure that the deal is well understood and commercial interests are protected.
The ability to put forth a service level agreement that balances between a sound contractual relationship and the promise of a good service is never going to be missed by any law firm. A commercial lawyer who cannot draft a service level agreement will be terribly out of depth.
5) Supply and Purchase Agreement
One of the first contracts that you will ever have to draft as a commercial lawyer are likely to be supply and purchase agreements.
These are the staple of any commercial enterprise and are responsible for making sure that buyers and sellers follow the mandates that have been agreed upon by both and provide/receive the services accordingly. It quite frankly obligates a buyer to buy and a seller to sell the given product.
Supply agreements may indicate long-term supply obligations and provide price-fixing mechanisms. In India, traders have avoided formal contracts for a long time, with only the blue chip and MNCs going for formal trading contracts.
However, with a clear push for formalization of the economy from the government, it is expected that demand for these contracts will be steadily on the rise, and many law firms/ services will have to be set up to cater to rising demands for legal documentation for trading.
The lack of a well-drafted sales and purchase agreement can leave a lot of ambiguity in terms of the overall transaction. Parties use ready-made templates as their agreements, which do not cater to their specific needs or detail their respective timelines, which cause even more problems.
People often end up making the agreement with an incompetent counterparty, who is incapable of providing the goods that are expected in the given time or at the given price.
It is up to you to grasp commercial interests and capture them in the agreement in their entirety. It is not an easy task and requires a high level of skills.
6) Franchise Agreement
In a rapidly growing economy, where brands often act as a centerpiece of the economy, and the affluent buyers get increasingly fond of them, franchising must become the norm.
There is no franchising without franchisee agreements. Given how important and valuable these agreements are to the franchisor, they never hesitate to spend the required legal budget on these agreements. As a matter of fact, usually, these agreements are frequently updated to keep in line with new business challenges and learnings in the marketplace.
As a commercial lawyer, you will be paid handsomely indeed to handle franchise agreements. Most people that are looking to get into this business, are negligent about the rights that they get under the agreement.
Many think that franchisee agreements are non-negotiable. It is important for you to understand that it is not just negotiable but that many franchisors actually expect reasonable negotiations.
It is important to make sure that there is no ambiguity as far as legal protection is concerned and there are none missing. A well-negotiated franchise agreement actually goes a long way to make sure that the franchisees do not have to stand for costly obligatory upgrades that the franchisor might want at regular intervals.
And it also clears up any and all post franchise doubts regarding the usual non-compete clauses that most contain.
Good knowledge about the franchise business model and the understanding of how the agreement works will always work in your favour if you ever wish to stand out as a commercial lawyer.
7) Shareholders’ Agreement
Shareholders’ Agreements are the cornerstone of the modern private business organization. It forms the basis of corporate governance for a private company and enables investors to pool in the capital in order to create a large commercial organization.
Every time there is a new investment or someone has to sell their shares in a private or a public company (unlisted shares), either a new shareholders’ agreement must be drafted or an old one is modified.
The shareholders’ agreement usually take care of critical issues like how investors may exit in the future, what information rights they have, who seats in the board of the company, how important decisions can be made, if any of them are to have any veto rights, what provisions will exist to protect rights of minority shareholders and so on.
These agreements always involve big stakes and a lot of negotiation. Entire practice areas of big law firms, such as Private Equity and Venture Capital, M&A etc entirely deal with drafting and negotiating these agreements.
These agreements can run into hundreds of pages and may take months to negotiate. Naturally, they earn big fees for lawyers. If you are not comfortable with these agreements, it will be indeed very difficult to make it as a commercial lawyer.
However, a good understanding of the clauses involved with makes you an excellent choice for being hired in good law firms.
8) Rent and Lease Agreement
Rental and lease agreements with regards to housing and real estate are a part of an independent lawyer’s everyday schedule. Bigger law firms may deal with corporate leases more frequently than anything else. Deal lawyers come across these agreements while doing due diligence on the target company.
Rental agreements are mostly short-term, ranging from three months to twenty-four months, renewing at the end of each cycle at the discretion of the landlord and the willingness of the tenant to continue to rent. Lease agreements can even be for a century. It is important to know your way around both.
As there can be immediate eviction notices, misrepresentation by either tenant or landlord, misuse of the property, or willful squatting as result of a faulty agreement, it is imperative that precautions are taken beforehand in the agreement to protect both parties.
9) Term Loan Contract
In a growing economy, term loans are a necessity and a cheap source of capital for organizations to expand. Proper term loan contracts are required to protect the lender from being taken advantage of.
Term loan contracts stipulate the set period of time in which the borrower has to return the money including the interest. It is important to know that interest rates are fluctuating and a bad credit score can increase the interest you have to pay over the principal amount.
As term loans usually last between one and ten years but may last as long as 30 years in some cases, it is very important to draft them accordingly and provide adequate details regarding the aforementioned interest rates.
You should keep in mind that term loan contracts also outline the consequences of defaulting on any payment. It can result in termination of the agreement and with it, any property or goods provided as collateral.
10) Government Contracts
Acquiring a government contract is no easy business. Any lawyer worth his weight in gold would have to know and understand all the prerequisites that exist and the regulations that come with it, before even moving to place an official bid.
Government contracts are a result of the Government contracting privately owned firms to provide services to itself for infrastructure, defense, development and such. You have to realize that these are huge undertakings.
As a commercial lawyer working towards a government contract you have to be very well prepared. You need to review all existing contracts and make sure there are no overlapping areas of competing interests as is with all other contracts.
Negotiating a government contract is a whole other thing that you have to be aware of. Lawyers need to be involved right from the preparatory stage for bidding for, bagging and managing a contract awarded by the government.
Ample knowledge of these contracts is very important for any lawyer. The ability to comprehend and deliver a contract matching all the expectations of your client while also keeping it beneficial to the other party can only be acquired with total dedication and the proper tools to learn.
At iPleaders, we create world-class legal learning tools for you.
Definitely check out our contract drafting course here.
‘For a larger course that covers other aspects of being a commercial lawyer and not just drafting, check out our 1-year business law diploma course.