What are the Different Types of Business Agreements?

April 24, 2025

In the world of business, clarity and trust are key to building long-lasting professional relationships. A business agreement is a legally binding contract that outlines the terms and conditions agreed upon by parties involved in a business transaction. These agreements help minimize risks, prevent disputes, and ensure smooth operations. Understanding the different types of business agreements is essential for any entrepreneur, startup, or company.

In this blog, we will explore the most common and important types of business agreements used in India.

1. Partnership Agreement

A Partnership Agreement is a contract between two or more individuals who decide to run a business together and share its profits and losses. This agreement defines:

Roles and responsibilities of each partner
Capital contribution
Profit-sharing ratio
Dispute resolution process
Exit or termination terms

This document is essential for registered as well as unregistered partnerships under the Indian Partnership Act, 1932.

2. Memorandum of Understanding (MoU)

A Memorandum of Understanding is a non-binding agreement that outlines the general principles of an intended deal. It acts as a foundation for future legally binding contracts.

Used during early stages of negotiations
Lays down the intention of the parties
Helpful in joint ventures, collaborations, or potential investments

Though not always legally enforceable, an MoU reflects the mutual understanding between parties.

3. Non-Disclosure Agreement (NDA)

An NDA is a legal contract that protects sensitive information shared between parties. It is commonly used when:

Sharing business ideas
Hiring consultants or freelancers
Discussing trade secrets or intellectual property

NDAs ensure that the other party does not disclose or misuse confidential information. It can be unilateral or mutual.

4. Employment Agreement

An Employment Agreement is signed between an employer and an employee, defining the terms of employment such as:

Salary and benefits
Job role and responsibilities
Working hours and leave policy
Termination conditions
Non-compete or non-solicitation clauses

This document protects the interests of both parties and is vital for a smooth employer-employee relationship.

5. Vendor or Supplier Agreement

A Vendor Agreement is entered between a company and its vendor or supplier to define the terms of supply of goods or services.

It usually includes:

Scope of work
Payment terms
Delivery timelines
Penalties for delays or defects
Quality control terms

This agreement is essential to maintain consistency and trust in supply chain operations.

6. Franchise Agreement

A Franchise Agreement is signed between a franchisor (brand owner) and a franchisee (business operator) that allows the latter to use the brand name, business model, and trademarks.

It includes:

Franchise fees and royalties
Use of intellectual property
Support and training offered
Duration and renewal terms
Termination clauses

This agreement is crucial for businesses expanding through the franchise model.

7. Shareholders’ Agreement

This agreement is entered into by the shareholders of a company to regulate their rights and responsibilities.

Key points include:

Voting rights
Transfer of shares
Board member appointments
Exit strategy and buyout options
Conflict resolution mechanism

This document helps maintain corporate governance and protects minority shareholders.

8. Joint Venture Agreement

When two or more companies come together to carry out a specific business project, a Joint Venture Agreement is formed.

It outlines:

Contribution of resources
Profit and loss sharing
Project timelines
Roles and decision-making authority
Exit terms

This agreement is ideal for temporary partnerships or strategic collaborations.

9. Service Level Agreement (SLA)

An SLA is commonly used in IT, telecom, and outsourcing industries. It defines the level of service expected by a client from a service provider.

It covers:

Response and resolution time
Downtime and availability
Penalties for underperformance
Metrics for measuring service quality

SLAs ensure accountability and performance standards.

10. Licensing Agreement

A Licensing Agreement allows one party to use another party’s intellectual property (IP), such as patents, trademarks, or copyrights, under specific conditions.

It mentions:

License fee or royalty structure
Scope and duration of the license
Territorial rights
Renewal and termination terms
Restrictions on use

Such agreements are crucial for software companies, content creators, and inventors.

11. Consultancy Agreement

This agreement is signed when a company hires an external consultant or advisor for a project or expertise.

It includes:

Scope of services
Project timeline
Payment and billing
Confidentiality clauses
Ownership of work/products

It ensures that both the consultant and client are clear on the expectations and deliverables.

Why Business Agreements are Important

Legal Protection: Clearly defined rights and duties reduce the risk of legal disputes.
Clarity and Transparency: Everyone knows what is expected and agreed upon.
Professionalism: Establishes trust between parties.
Recordkeeping: Serves as a written record for future reference.
Compliance: Helps meet regulatory and tax obligations.

Conclusion

Business agreements are the backbone of any professional relationship. They define the expectations, protect the rights, and prevent conflicts. Depending on your business type, you may need one or multiple agreements in place. Always consult a legal expert before entering into any agreement to ensure your interests are well-protected.

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