Corporate Contract

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Corporate Contract

A Corporate Contract is a legal contract between an organization and its stakeholders like the shareholders, customers, and vendors. It is a bipartite agreement as there are two parties involved, the organization and the stakeholder. This agreement is necessary for any corporate irrespective of the nature of the business. It is like the constitution of the business and the key information about the company is included in this agreement. The relationship with the stakeholders of the company is clearly defined including limitations if any. The terms and conditions in this agreement are legally binding for both the organization and the stakeholders. It is also a declaration of the legal structure of the individuals who have decided to form the company that have been decided upon.

When Do You Need a Corporate Contract

A corporate contract is required when an official entity is formed to conduct business in a certain sector. The purpose of a corporate contract is to define the legal structure of the organization as that will determine in the eyes of law about the rules and regulations that apply to it. Depending on the structure chosen, the organization will have to get either into  a partnership, be privately or publicly held. For the promoters or shareholders of the company, it will state the tax liability of the entity as well as the distribution of profits among them. These contracts protect the interest of both the company and any external party dealing with it. 

Inclusions in a Corporate Contract

The names of all the parties involved in the agreement must be included in a corporate contract. The contract must also include the effective date of the agreement, the legal entity of the company, the registered office of the company, branches if any, the nature of the business, the total shares outstanding and the shares in the names of the board members. The purpose for which the company is formed also needs to be stated and the powers will be in accordance to the form of corporation chosen. The rights and liabilities of the partners or shareholders will be clearly stated. In case of a publicly held company, the existing shareholders will be offered any additional shares first. If they don’t purchase the shares, the shares will be sold to a third party. The details regarding the distribution of profits and losses will be included. 

How to Draft a Corporate Contract

When drafting a corporate contract, the following points need to be kept in mind:

  • The names of the parties to the agreement and the relationship shared between them should be included
  • The amendments, if any, to the agreement should be provided in a clause
  • Notices to be delivered under this agreement and the form in which they should be delivered
  • Governing law: The laws of the state under whose jurisdiction the agreement is drafted should be complied with
  • All the details regarding the meetings of directors and members are to be part of this agreement. The quorum required to call a meeting also must be mentioned.
  • The events which will lead to the dissolution of the company also needs to be mentioned including the process of liquidation
  • Perpetuity provisions: The company will not cease to exist upon the death of a member or bankruptcy of a member

Benefits of a Corporate Contract

The benefits of having a corporate contract are given below:

  • The parties to the agreement will have to follow the necessary formalities while operating the company. The rights and liabilities of the members or shareholders as owners and individuals are clearly demarcated.
  • Disputes are avoided, the areas of operation are clearly defined. One partner cannot impose his or her ideas on another partner who has been allocated a different responsibility.
  • Predictability in operations: If the entity does not have a formal agreement, then the default state laws will apply. Resolution of disputes will become very difficult as state laws are very complicated.

Types of Corporate Contract

The types of corporate contract are given here:

  • Sole proprietorship: As the name suggests, under this type of corporate contract there is a single owner. The drawback of this form of business is that the owner is responsible for all the debts and obligations of the company.
  • Partnership: There are two or more owners in a partnership business. The partners are not only responsible for payment of their personal taxes, but also liable for the financial obligations of the company.
  • Limited liability company: These companies can be used to form partnerships or corporations as needed. Such structures can protect the owners from liabilities like in an organization.
  • Corporations: The liabilities of the company are separate from its owners’ responsibilities.

Key Terms of a Corporate Contract

The key terms of a corporate contract are as follows:

  • Act: Means the act which governs the operations of the company
  • Articles of association: This means the articles of the organization filed with the relevant state association
  • Capital contribution: This is the capital contribution made by the member
  • GAAP: This refers to the generally accepted accounting principles according to which the books of accounts are maintained
  • Execution of certificates: Members will execute certificates or qualifications to do business as and when required
  • Registered agent and registered office: The name and address of the registered agent and registered office
  • Purpose and powers: The purpose for which the company is formed and the powers according to the structure adopted

Download a Corporate Contract

If you want to form a company, then it is important to have a corporate contract drafted.

You can download a sample corporate contract here.

Download Corporate Contract Agreement Template

Corporate Formation Agreement

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