5 dangers of unsigned contracts and agreements:

A contract has been defined as a written or spoken agreement, especially one concerning employment, sales, or tenancy, that is intended to be enforceable by law. It is advisable that parties negotiate and manage contracts before concluding on it. One of the ways one can show that they do agree with the terms and with the other party’s condition, is when they sign or witness the contract/agreement.

Therefore, signed a contract is very important, the dangers of not signing a contract are as indicated below.

1. Lack of Legal Enforceability: Unsigned contracts and agreements are not legally binding. This means that parties may not be able to enforce the terms and conditions stated in the contract. This also is an indication that there was no agreement between the parties.
2. Ambiguity: An unsigned contract or agreement may lack clarity and precision in terms of obligations, duties, and responsibilities of both parties. This may lead to a misunderstanding or disagreement between the parties.
3. Misrepresentation: In the absence of signed contracts and agreements, one party may misrepresent their intent, obligations, or duties in the contract. This leads to the other party being misled and unprotected.
4. Unforeseen Circumstances: Unsigned agreements may not account for unforeseen situations that may arise during the performance of the contract. This may lead to conflicts and disputes between parties.
5. No Legal Record: Without a signed contract or agreement, there is no legal record of the terms and conditions agreed between the parties. This may lead to confusion, misunderstandings, and loss of evidence in case of a legal dispute or litigation.

In conclusion, it is advisable to always sign contracts and agreements to avoid the risks and dangers associated with unsigned contracts.

How can we assist?

The success of a business is pegged on how well it protects itself from loss and harm arising from contractual relationships. Such loss and harm is prevented or reduced by having an understanding of how contracts/agreements are drafted and negotiated. At Netsheria International, we offer a wide scope of legal documents and legal to meet the requirements for different businesses. For more information, kindly visit our website or contact us via email.

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WHY YOU SHOULD ALWAYS INCLUDE AN ARBITRATION CLAUSE IN A CONTRACT DOCUMENT

An arbitration clause is a provision in a contract that requires the parties to resolve any disputes that may arise through arbitration rather than through court litigation. The act defines an Arbitration as, a procedure in which a dispute is submitted, by agreement of the parties, to one or more arbitrators who make a binding decision on the dispute. (Arbitration Act 1995).

It is important that when parties are drafting, negotiation or to always include a Dispute resolution method clause in the document, there are several Dispute resolution methods, Arbitration being at the core of them all. Here are some reasons why you may need to have an arbitration clause in every agreement:

1. Faster and Less Expensive Dispute Resolution: Arbitration is typically faster, less formal, and less expensive than court litigation. With an arbitration clause, the parties agree to avoid the expense and delay associated with court litigation.
2. Expertise and Neutrality: The parties can select an arbitrator with expertise and experience in the subject matter of the dispute, which can lead to a more informed and neutral resolution.
3. Privacy: Arbitration proceedings are generally private and confidential, which can be beneficial if the dispute involves sensitive or proprietary information.
4. Enforceability: Arbitration awards are generally easier to enforce than court judgments. If the losing party refuses to comply with the decision, the winning party can obtain a court order to compel compliance.

In conclusion, including an arbitration clause in every agreement can provide benefits such as faster and less expensive dispute resolution, expertise and neutrality, privacy, and enforceability. However, it is important to consult with legal counsel to ensure that an arbitration clause is appropriate for your specific situation.

How can we assist?

The success of a business is pegged on how well it protects itself from loss and harm arising from contractual relationships. Such loss and harm is prevented or reduced by having an understanding of how contracts/agreements are drafted and negotiated. At Netsheria International, we offer a wide scope of legal documents and legal to meet the requirements for different businesses. For more information, kindly visit our website or contact us via email.

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7 EXAMPLES OF WHAT TO DISCLOSE AT THE INITIAL STAGES OF CONTRACT NEGOTIATION

1. Material facts: Parties to a contract should disclose all material facts that are relevant to the transaction. This includes things like the terms of the contract, the price, and any relevant conditions.
2. Known issues: If there are any issues that the parties know about that could affect the value or performance of the contract, they should disclose them for example is the property charged to a bank in case of a land transaction.
3. Legal issues: Parties should disclose any legal issues that may affect the contract, such as any legal disputes or regulatory requirements, for example if it is a merger, Capital Markets Authority, the Competition Authority need to be notified and approved to avoid unfair competitive tendencies.
4. Financial issues: Parties should disclose any financial issues that may affect the contract, such as creditworthiness or bankruptcy this is made clear by providing audited reports on the books of accounts.
5. Intellectual property issues: If the contract involves any intellectual property, parties should disclose any issues related to ownership, infringement, or licensing.
6. Confidential information: Parties should disclose any confidential information that may be relevant to the contract, such as trade secrets or proprietary information.
7. Performance expectations: Finally, parties should disclose their expectations regarding the performance of the contract. This could include things like timelines, deliverables, and quality standards, payment terms, conflict resolution.

How can we assist?

The success of a business is pegged on how well it protects itself from loss and harm arising from contractual relationships. Such loss and harm is prevented or reduced by having an understanding of how contracts/agreements are drafted  and negotiated. At Netsheria International, we offer a wide scope of legal documents that can be tailored to meet the requirements for different businesses. For more information, kindly visit our website.

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BEWARE OF THESE RED FLAGS!!!!

Many clients have been asking us how to tell that a contract/agreement is not favorable, considering all clauses have been stated in the agreement. Some have signed and gone into contracts without noticing the RED FLAGS that can later cost them or make them lose millions of shillings. Below are the 9 examples of RED FLAGS to look out for in an agreement.

1. Unclear or ambiguous language: Any ambiguity in the contract can lead to disputes and disagreements down the line. Make sure all terms and language are clearly defined.
2. One-sided terms: A contract should be a mutually beneficial agreement. If one party is getting a significantly better deal than the other, it may be a red flag.
3. Missing or incomplete information: A contract should include all necessary details and information. If any key information is missing or incomplete, it could cause problems during the contract period.
4. Non-disclosure clauses: Non-disclosure clauses can be helpful in protecting confidential information, but they may also limit your ability to share or use certain information.
5. Lack of flexibility: Contracts that are too rigid may not account for unforeseen circumstances or changes in circumstances.
6. Short-term focus: Contracts that are focused solely on short-term gains may not account for long-term implications or consequences.
7. Lack of legal review: Contract negotiations should always be reviewed by a lawyer to ensure the terms are fair and legally binding.
8. Excessive demands: If one party makes excessive or unreasonable demands, it may be a sign that the other party should walk away from the deal.
9. Requesting that the work or the job commences without signing the contract first is a big red flag, often times the other party is not willing to commit or may not pay for the services offered to them and you shall have no proof of an agreement because it was not signed.

In conclusion, always be aware of these red flags before signing any contract or agreement.

How can we assist?

The success of a startup is pegged on how well it protects itself from loss and harm arising from contractual relationships. Such loss and harm is prevented or reduced by having understanding how contracts/agreements are drafted. At Netsheria International, we offer a wide scope of legal documents that can be tailored to meet the requirements for different businesses. For more information, kindly visit our website.

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4 REASONS WHY DISCLOSURE IS IMPORTANT IN AN AGREEMENT OR CONTRACT SIGNING

Disclosure is an essential component of any agreement or contract signing. It is the act of revealing all significant and relevant information to the other party involved in the agreement or contract. This information could include finances, obligations, liabilities, and other pertinent details that can affect the outcome of the contract.

When entering into transactions like mergers and acquisitions, construction agreements and general dealings even when buying a car or a house, disclosure if not honored can cause or lead to losses to the party investing in the transaction.

The importance of disclosure in contract or agreement signing lies in the following reasons:

1. Avoidance of legal issues: One of the main reasons why disclosure is crucial is to avoid any legal issues or disputes. It ensures that all parties involved in the agreement understand what they are getting into and reduces the risk of misunderstandings and conflicts.
2. Protection: Disclosure can protect both parties involved in the agreement. For example, if you are signing a contract to buy a car, the seller must disclose any defects or issues with the vehicle. This ensures that the buyer knows what they are getting and can make an informed decision.
3. Trust: Disclosure builds trust between both parties. If one party hides information or provides incomplete details, it can damage the trust they have and impact the relationship going forward.
4. Fulfilling obligations: Disclosure sets out the expectations and commitments of both parties. By revealing all necessary information about the agreement, it ensures that obligations get fulfilled on both sides.

In conclusion, disclosure is a critical component of any contract or agreement, and both parties must understand the importance of full and transparent disclosure. This ensures that everyone involved can make informed decisions and fulfill their obligations without any legal issues or disputes.

How can we assist?

The success of a business is pegged on how well it protects itself from loss and harm arising from contractual relationships. Such loss and harm is prevented or reduced by having understanding how the contracts are reviewed, managed and negotiated. At Netsheria International, we advise on contract negotiation and also review contracts. For more information, kindly visit our website at www.netsheria.com

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WHY REPRESENTATIONS AND WARRANTIES ARE A MUST HAVE CLAUSE IN YOUR AGREEMENT

Representation and warranty clauses are an essential part of any agreement as they help to provide a level of assurance and protection to all parties involved in the agreement. These clauses are typically included in contracts or other legal documents, and they serve to outline the rights, obligations, and responsibilities of each party.

Representation clauses are used to confirm the accuracy of certain information or facts related to the transaction. This includes information about the parties involved, the assets being transferred, and any obligations that are being assumed as part of the agreement. For example, if a company is acquiring another company, the representation clause might state that the target company has no outstanding legal or tax issues, and that they own all of their intellectual property rights.

Warranty clauses, on the other hand, are used to provide a guarantee or promise related to the transaction. This includes guarantees related to the quality of the goods or services being provided, and the ability of the parties to fulfill their obligations. For example, if a company is selling a product to a customer, the warranty clause might state that the product is free from defects, and that the company will replace or repair any defective products within a certain time frame.

EXAMPLES OF REPRESENTATION AND WARRANTY CLAUSES YOU MAY HAVE INCLUDE IN YOUR CONTRACTUAL AGREEMENT

1. The seller represents and warrants that it has full power and authority to execute, deliver and perform this agreement and the transactions contemplated herein.
2. The buyer represents and warrants that it has sufficient funds to complete the purchase of the assets and that it is not aware of any circumstances that would prevent it from completing the purchase.
3. The seller represents and warrants that it is the legal and beneficial owner of the assets and that it has good and marketable title to the assets, free and clear of all liens, mortgages, charges, claims, and encumbrances.
4. The buyer represents and warrants that the purchase of the assets will not violate any law, regulation, order, or judgment of any court, or any agreement to which the buyer is a party.
5. The seller represents and warrants that the assets are in good and saleable condition and that there are no material defects that would materially affect the value of the assets.
6. The buyer represents and warrants that it has conducted sufficient due diligence with respect to the assets, and it is satisfied with its findings.
7. The seller represents and warrants that it has obtained all necessary consents, authorizations, and approvals required for the sale of the assets.
8. The buyer represents and warrants that it will comply with all applicable laws and regulations in connection with the ownership and operation of the assets.
9. The seller represents and warrants that it is not aware of any litigation or other proceedings that would materially affect the value of the assets.

In summary, representation and warranty clauses are important because they help to clarify the terms of an agreement, provide assurance to all parties involved, and reduce the risk of misunderstandings, disputes, and legal issues.

How can we assist?

The success of a startup is pegged on how well it protects itself from loss and harm arising from contractual relationships. Such loss and harm is prevented or reduced by having understanding how contracts/agreements are drafted. At Netsheria International, we offer a wide scope of legal documents that can be tailored to meet the requirements for different businesses. For more information, kindly visit our website. 

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WHY YOU NEED THAT ACCELERATION AGREEMENT (CLAUSE)

An acceleration agreement is a type of clause found in many types of contracts that allows the contracting parties to accelerate the performance of obligations in certain circumstances.

For example, if a borrower fails to make their loan payments on time or violates other terms of their loan agreement, an acceleration clause may allow the lender to demand immediate repayment of the entire loan amount (instead of just monthly payments) so that they can avoid further losses.

Similarly, an acceleration agreement in an employment contract might allow an employer to recover signing bonuses or other payments made to an employee if the employee leaves the company before fulfilling certain obligations, such as completing a set number of projects or working a minimum number of years.

In general, acceleration agreements are designed to protect the interests of one or more parties to a contract by ensuring that they are not left without recourse if the other party fails to fulfill its obligations. However, they should be carefully drafted and reviewed to ensure that they are fair to all parties and enforceable under the law.

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UNDERSTANDING THE ROLES AND RESPONSIBILITIES OF A GUARANTOR

A guaranteed loan is a loan that a third party guarantees or assumes the debt obligation for, in the event that the borrower defaults. The third party is a guarantor often making reference to either a legal person or an individual who promises to pay a borrower’s debt in the event that the borrower defaults on their loan obligation.

Guarantors can either be limited or unlimited, with respect to different levels of financial involvement.

A limited guarantor may be asked to guarantee a loan only up to a certain time, after which the borrower alone assumes responsibility for the remaining payments and alone suffers the consequences of defaulting.

Unlimited guarantors on the other hand, are liable for the entire amount of the loan throughout the entire duration of the loan agreement.

In rare instances, individuals (borrowers) act as their own guarantors, by pledging their own assets against the loan. In Kenya, it is to be noted that the term “guarantor” is often interchanged with the term “surety.”

A guarantee is a significant element when an agreement is made between two parties to advance a loan facility and thus the inclusion of a guarantor is necessary. For instance, when the lender has less confidence in the borrower due to a low credit score, the presence of a guarantee can attract the lender. A guarantor thus needs strong credit, a good income, and adequate assets to guarantee loan repayment.

Some of the mandates of a guarantor include:

• A guarantor guarantees to pay a borrower’s debt in the event that the borrower defaults on a loan obligation.

In a guarantor loan agreement, the Guarantor will pay to the Lender, upon demand, all money and discharge all obligations and liabilities, whether actual or contingent, owing or incurred to the Lender by the Principal Debtor.

• The guarantor guarantees a loan by pledging their assets as collateral.
• If the borrower defaults on their loan, then the guarantor is liable for the outstanding obligation, which they must meet, otherwise, legal action may be brought against them.

The Rights of the Guarantor

Unlike a co-signer who co-owns the asset purchased via the loan facility advanced to the borrower by the lender, a guarantor has no claim to the asset purchased by the borrower.

It is thus crucial to be aware of the few rights available to you as a guarantor if the borrower defaults and the lender pursues you to repay the outstanding debt. These include:

• Reimbursement: if a guarantor paid any part of the borrower’s debt, the guarantor can pursue the borrower to recover the money paid or any out-of-pocket expense incurred in paying the debt. Specifications on this may vary from contract to contract.
• The right to subrogation: if the guarantor pays back the lender/ financial institution in full, the guarantor is released of liability to them and consequently becomes the lender. As a result, the guarantor then has all the same rights as the bank did to collect the debt from the borrower.

In the event that the borrower has a claim against a third party that has caused the default, the guarantor has the right to invoke the doctrine of subrogation (“step into the shoes of the borrower”) in order to recover damages.

• Collection from other guarantors: had there been multiple guarantors on the guarantor loan agreement and a guarantor paid more than his/her share of the debt or even satisfied the debt in full, he/she can pursue the other guarantors for their aggregate portions.

How can we assist you?

At Netsheria International, we have an experienced team of lawyers who can offer you legal assistance in your Guarantor Loan Agreements. Please contact us for our services via email or visit our website for more information on our services.

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10 Must Have Clauses in an LLP Agreement That Are Not Prescribed Under the LLP Act.

A limited liability partnership (LLP) can be defined as an incorporated business formed by 2 or more natural persons or a body corporate and is governed by the Limited Liability Partnership Act 2011 (LLP Act). LLPs are a perfect fit for most professionals like lawyers and doctors, two professions at high risk for malpractice suits.

The partnership Agreement must be in agreement with the LLP Act as it is the governing legislation.

For example: Some default provisions under schedule 1 of the LLP Act include,

1. Each partner in a limited liability partnership is entitled to participate in the management of the partnership.
2. A partner in a limited liability partnership is not entitled to remuneration for acting in the business or management of the partnership.

• A person can only become a partner in a limited liability partnership with the consent of all the existing partners.

The following are clauses for consideration that are not stipulated under the LLP Act:

Capital contribution.

What each partner contributes to the firm must be specified in the partnership agreement. It can be beneficial to make these expectations clear up front to assist you prevent issues later on.

Additionally, the incoming contributions that each partner will make. These can be necessary before the company starts to turn a profit. For instance, the agreement can specify that more contributions from each partner are necessary if the initial contributions are insufficient.

The Proportion of ownership.

Partners ought to pledge what they will each give to the business in the partnership agreement. The partnership agreement may include pledges of services or property, and the partners may agree to provide capital to the business in the form of monetary contributions to aid with initial costs or contributions of equipment. These contributions typically determine each partner’s ownership stake in the company, and as such, they are crucial aspects of the partnership agreement.

Partnership Duration.

Although it is typical for partnerships to operate for an indefinite period of time, there are some cases where a business is intended to dissolve or end after attaining a particular milestone or after a set number of years. Even when the time limit is not defined, this information should be included in a partnership agreement.

Decision Making and Resolving Disputes.

The most common conflicts in a partnership arise due to challenges with decision making and disputes between partners. A voting system or another mechanism to ensure checks and balances among partners may be included in the parameters spelled out in the partnership agreement regarding the decision-making process. A partnership agreement should also specify how decisions will be made and how disagreements will be resolved. This is often accomplished through a mediation provision in the contract designed to offer a way to settle disputes between partners without the need for court involvement.

Duties and Responsibilities of each Partner.

In further elaboration of the default provision of on management of the partnership, it is integral for the partnership to stipulate the management roles of the various partners. This would include the responsibilities of the partners in the day to day operations as well as the voting rights of the various partners.

A business has several tasks that must be executed. Certain management positions might overlap (or only need temporary oversight). When there is a communication breakdown and no clear definition of each partner’s duties, responsibilities frequently overlap. Further, the agreement must include a procedure for making decisions, it must indicate if decisions will be made by democratic procedures, delegation, or consensus of all the partners.

Prohibited Conduct.

Further to the above this clause would stipulate the conduct that is expressly forbidden. This clause would be necessary to give partners utmost clarity as well as stipulating the resulting penalties for such conduct.

Drawings.

This clause would entail the amount of money each partner is eligible to withdraw from the business at a particular given time. This would protect the business form illiquidity that would otherwise be a threat without the clause.

Non-compete clause.

When a partner departs, you don’t want them to start a competitor nearby. The best course of action is to solve the issue before it arises.

Partnership agreements ought to have a non-compete clause stating that the partners won’t launch a rival company or engage in direct rivalry.

Death or Disability of a partner.

In the event of death or incapacitation of a partner, this clause would stipulate the resulting procedure and effects. It is important for partners to acknowledge to whom their controlling interests would accrue to. This would assist partners to navigate the uncertainty of tragedy on the business.

Winding Up/Dissolution.

The partnership deed ought to stipulate the number of partners that initiate the dissolution of the partnership, and importantly how its assets would be distributed.

While a partnership agreement can have a myriad of clauses that are tailor made for the particular objectives of the business in congruence with the relevant legislation the above clauses are paramount to ensure growth of your business.

How can Netsheria help?

We, at Netsheria, have excellent and experienced corporate and commercial lawyers who will help you in setting up your preferred business vehicle by for example drafting and/or reviewing your Partnership agreement to ensure that you have the appropriate vehicle for your business needs. Contact any of our team today or book an online consultation here.

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ADVANTAGES AND DISADVANTAGES OF LIMITED LIABILITY PARTNERSHIPS

A limited liability partnership (LLP) can be defined as an incorporated business formed by 2 or more natural persons or a body corporate and is governed by the Limited Liability Partnership Act 2011 (LLP Act). LLPs are a perfect fit for most professionals like lawyers and doctors, two professions at high risk for malpractice suits.

Registration Process of a Limited Liability Partnership

LLP registration is structured to allow one stage registration process that involves filing an electronic application through e-citizen for the incorporation of an LLP and paying the required fee to the registrar of companies. The LLP is deemed created when the registrar of companies issues a certificate of incorporation

LLPs offer advantages for certain business professionals including:

1. Ease of registration;

As explained above LLP registration is structured to allow for one step registration process as contrasted with registration of a company.

1. Liability protection for partners;

The most salient and apparent advantage for LLPs is the limited liability guaranteed to the partners; this is espoused in section 10 of the LLP Act 2011. The partners are only liable for their capital contribution and are personally shielded from the liability of the business.

1. Avoidance of double taxation;

Partners are only liable to pay taxes on their partnership’s income and not as individuals.

1. Flexibility in adding and removing partners.

LLPs also have the ability to structure an ownership group that is different from the employees guiding day-to-day operations as governed by the partnership deed.

LLPs are also curtailed by certain disadvantages such as:

1. Liable for acts or omission of a partner.

The partnership is liable for the acts or omissions of a partner who is acting in the ordinary course of the business. The court stated that Car & General v Marende t/a Marende & Co. Advocates & Another [2003] Vol. 2 E.A. 384 stated that every partner in a firm is liable jointly with the other partners for all debts and obligations of the firm incurred while he is a partner.

1. Liable for an employee’s negligence.

Partnerships are also liable for acts or omissions of their employees who are performing their duties in the ordinary course of business. This is a risk factor that can only mitigated by implementing strict rules of procedure and protocol while dealing with clients for the business.

How can Netsheria help?

We, at Netsheria International have excellent and experienced corporate and commercial lawyers  who will help you in setting up your preferred business vehicle by for example drafting and/or reviewing your Partnership agreement to ensure that you have the appropriate vehicle for your business needs. Contact any of our team today or book an online consultation www.netsheria.com

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