Article XII Legal awareness of Contractual Documentation required for Business Enterprise Expansion and Growth.

Documentation related to various Business Structures

As we have seen in my first series of Articles, in the process of evolution of a business, any Entrepreneur’s initial customers are his “friends and relatives” and gradually, as the business grows, the Entrepreneur extends the sale of his goods and services to the “Society”.

In this journey, every Entrepreneur executes various documents to cover the legal and commercial aspects of the business transactions. We shall now look into some of these documents which an Entrepreneur normally enters into to cover all such transactions.

List of documentation that is normally executed.

1.       Non-Disclosure Agreement (NDA)

2.       Proposal  

3.       Purchase Order (PO)  

4.       Agreement

5.       Master Services Agreement (MSA)

Non-Disclosure Agreement (NDA): When an Entrepreneur moves his customer base from individuals to society, often this is the starting point of building relationships between the parties. Each party seeks to protect “Confidential and Proprietary Information” about its products/services and enters into a Non -Disclosure Agreement (NDA) covering the probable tenure of the proposed relationship.

Proposal: The execution of the NDA is normally the starting point of any business activities between two or more parties. The party selling goods/ services (“Seller”) gives his/ her formal written proposal to the prospective buying party (“Buyer”). Such a proposal normally includes 1) Goods/ Services to be provided 2) Price and related provisions 3) Time & place of delivery and 4) All other commercial and legal terms and conditions related to goods/ services to be provided.

Purchase Order: On receipt of the aforesaid “Proposal“the Buyer may accept the Proposal or may further discuss/negotiate the terms and conditions with the Seller. Thereafter, based on such discussions/negotiations, the Buyer issues to the Seller a formal written “Purchase Order” containing detailed agreed terms and conditions on the basis of which he /she has agreed to procure goods /services from the Seller which shall contain agreed   1) Goods/ Services to be provided 2) Price and related provisions 3) Time & place of delivery and 4) All other agreed  commercial and legal terms and conditions.

On issuance of such “Purchase Order” by the Buyer in response to the Seller’s “Proposal,” it becomes a binding “Contract“between the parties. 

Memorandum of Understanding (MOU) or Agreement: As seen above, the exchange of “Proposal” and “Purchase Order” between two parties completes the binding “Contract” between the parties. Now the question is: Is further documentation required? Yes, absolutely! 

In any transaction “All other commercial and legal terms and conditions” related to goods/ services to be provided need to be documented properly to protect the interests of both parties. For this, the parties should enter a detailed Agreement. 

 

Master Services Agreement (MSA):

The parties may wish to further expand their business relationship and may decide to deal in multiple business transactions (similar or different) over a period of time. In such a case the parties normally enter into a Master Services Agreement (MSA) for a longer tenure. An MSA is a base document covering all legal terms and conditions applicable to multiple business transactions. 

For such transactions “Transaction Documents/ Statement of Work (SOW)” documents are executed to cover commercial terms and conditions of the goods/ services. Such Transaction Documents are in turn governed by the legal terms & conditions of the previously executed Master Services Agreement (MSA).


For any query feel free to contact me.


Mahesh Vaidya
M.Com, LLM, ACS, DFM, CAIIB  
Legal Adviser
Cell Number 9769949701 / 9223173695
Email ID maheshvaidya2706@gmail.com

Comments

Post a Comment

Popular posts from this blog

Article VIII - Legal Awareness Series

  Formal Documentation – Minimum requirements/ parameters- areas to be covered. As seen in previous Article VI, when the entrepreneur moves from individual to society-based customers, the documents to be exchanged between the parties for any deal should have, in addition to commercial terms and conditions, legal terms and conditions as well to protect the interests of both the parties. The nature and type of these legal terms and conditions, form a part of legal documentation, depending upon the nature of the business for which they are to be prepared. The Indian Contract Act 1872 per se does not enlist or prescribe any “minimum legal terms and conditions” to be part of such documentation.   Nowadays the majority of small-scale and upcoming entrepreneurs are in the “service sector industry” or are involved in “trading activities ” ( buying goods in bulk and selling them in retail units)  where the operational and commercial terms and conditions in their documentation are ...
Read more

Article II - Legal Awareness Series

  Customer base enlargement- through the chain of references by Relatives & Friends As seen in the previous Article I- any business entrepreneur’s first customers are his relatives and friends who in turn refer him to their relatives and friends resulting in a chain of actions and reactions. Over the period these references and recommendations by relatives and friends directly as well indirectly result in the expansion of the customer base. This is simply because use and acceptance of the business entrepreneur’s products and services and the references and recommendations to friends and relatives through word of mouth. At this point, the business is entering into a stage where the customer base is expanding from the first set of an entrepreneur’s relatives and friends to the new customer base formed by referrals by such relatives and friends to their other relatives and friends and so on… This expanded customer base certainly needs to have more formal communication between the ...
Read more