Startup Basics

Profit Share and Revenue Share

Everything You Need To Know About Profit and Revenue Share Agreements in South Africa

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Profit or Revenue Sharing

Sharing profits or revenue between business partners is a key element of a successful business.  
A Profit or Revenue Sharing Agreement outlines how to share profits or revenue between business partners and in some cases, how you will divide any losses. 
Although neither of these agreements are legal requirements, the Agreements are an incredibly useful tool for your business – from start to finish.

So firstly, what exactly is a Profit Share Agreement?

Profit

/ˈprɒfɪt/

noun

“a financial gain, especially the difference between the amount earned and the amount spent in buying, operating, or producing something”

A Profit Share Agreement is a legal document or contract which allows for profits between business partners, along with the potential losses, to be shared between themselves.

Here is an example:

Assume you and your business partners plan to purchase an item for R50 and sell it for R100. In this scenario, R100 is the revenue and the profit would be sale price – cost price (R100 – R50), which would total R50.

If you have three partners along with you, you can’t each receive 100% of the profits. Split evenly, each business partner would receive 25% of the R50 profit. However, it is not always as simple as this. 

Perhaps you created the company or invested significantly, and may now want to split profits so that you receive 50% (R25) and your other partners receive the remaining share (R8.33 each). This type of agreement is achieved using a profit share agreement. 

What then, is a Revenue Share Agreement?

Revenue

/ˈrɛvənjuː/

noun

“income, especially when of an organization and of a substantial nature.”

Similarly, a Revenue Share Agreement is a legal document or contract which allows for revenue between business partners to be shared between themselves, along with potential losses.

The main difference between a Profit Share Agreement and a Revenue Share Agreement is that a Profit Share Agreement allows for your business expenses to be deducted from revenue prior to the profit being split between business partners. 

A Revenue Share Agreement, on the other hand, does not allow for this deduction.

Here is an example of a Revenue Share Agreement in practice:

Again, you and your business partners plan to purchase an item for R50 and sell it for R100. In this scenario, R100 is the revenue.

If you and your three partners agree to an equal share of the revenue, then you will all receive 25% (R25). Similar to the Profit Share Agreement, the total revenue may be shared unequally as agreed upon by all business partners.

Understandably, you may not be aware of all the differences between a Profit Share Agreement and a Revenue Share Agreement. To better explain the key differences and similarities between the two agreements, have a look at the figure below:

The Main Benefits of Profit and Revenue Share Agreements

  • Provides financial security for both parties. By legally agreeing to Profit or Revenue sharing terms and conditions, you may all proceed with your business venture with peace of mind
  • Prevents future misunderstandings and disputes. By making sure all partners are on the same page and understand their respective responsibilities, you negate future disputes or potential conflicts
  • Specifies how partners may or terminate the agreement, and what constitutes a breach. Should issues arise, both parties will have a copy of the contract to refer to and be aware of the grounds on which the agreement can be ceased
  • Establishing a Time Frame. The point at which partners begin sharing Profits or Revenue can disproportionately and significantly affect specific partners or parties. Negotiating a fair commencement date is key, as is the duration of the agreement. Specifying the full timeline, in detail, benefits all partners.

Quite simply, if you are entering into a business agreement, you are most likely going to have to negotiate how you and your partners split your business’ earnings. If this is the case, either a Profit or Revenue Share Agreement is indispensable.

Key Elements You Need to Understand about Profit and Revenue Share Agreements

Understanding contracts is an undeniably daunting task. So we’ve explained a few terms to help you simplify the process.

#1: Commencement 

There are a number of important dates in a contract – one of them being the Commencement date or clause. This date specifies when the contract will begin or commence and may also be initiated by a defined event. It is important that all partners are aware of and agree upon this date. 

commencement

/kəˈmɛnsm(ə)nt/

noun

“the beginning of something”

Example:

Partner A is selling hats and Partner B is developing an online webstore. The partner who is selling hats has developed the product, invested in building a brand and has covered all the costs thus far. Partner A (the hat seller) wants to negotiate a greater share of the profit or revenue and only wants to begin the sharing process once he/she is certain that the webstore and business endeavour will be rewarding. 
In this scenario:

  • The Profit or Revenue Share Agreement will commence on a date agreed upon by both partners, or 
  • The commencement date may be negotiated to begin only when the webstore is determined to be fully operational.

Failure to include a defined commencement date may result in your business losing out on profits or worse, also enduring unwarranted losses. 

#2: Duration & Termination

Duration outlines the term of a contract and therefore, how long a contract is valid – in this case, the Profit or Revenue Share Agreement. Simply put, it is the amount of time that the agreement will remain in effect or continue to apply. Once again, this may be a predefined length of time or underpinned by a defined event. 

duration

/djʊˈreɪʃ(ə)n/

noun

“the time during which something continues”

Termination of an agreement or contract refers to the legal process of ending contractual duties before they have been fulfilled or once they have been fulfilled. There are numerous reasons for why partners may choose to terminate or end an agreement. 

termination

/təːmɪˈneɪʃ(ə)n/

noun

“the action of terminating something or the fact of being terminated”

However, not all terminations of agreements may be mutual so it is important to note that partners intending to terminate may not be able to escape liability or continuing to have to part with profits or revenue. 

Example: 
Partner A intends to advertise their products on a popular billboard and has entered into a partnership with Partner B, who owns a billboard advertising company. The Profit or Revenue Share Agreement is due to commence from the date agreed upon by both parties and will be valid for the duration that the product is advertised on the billboard which is, in this case, an agreed upon period of two years.   

In this scenario:

  • The Profit or Revenue Share Agreement will be valid for two years, or 
  • The Profit or Revenue Share Agreement will only be valid whilst the billboard exists, or
  • Both partners can agree to terminate the agreement

It is very important that all partners agree upon and are aware of the duration of the agreement. Failure to include clear terms, may result in the agreement being valid indefinitely, terminated prematurely or may lead to potential misunderstandings. 

#3: Profit Share and Deductions

“Profit Share” clauses in a Profit or Revenue Share Agreement form the meat of such an agreement. It is probably the first clause that you, a business partner entering into an agreement, would want to read. It details how the profits will ultimately be divided between partners or parties.

profit-sharing

/ˈprɒfɪtʃɛːrɪŋ/

noun

“profit sharing is a way for a business to share a portion of the profit”

This clause provides clarity on how exactly partners will divide the profit.

The Profit Share will also detail the expenses that will be deducted from revenue to arrive at the profit, which will then be split between the partners. This was illustrated in detail in Example 1

This clause records all expenses and deductions which need to be deducted from the revenue to arrive at the profit to be split. This is an important detail, as you do not want to have ambiguous recordings of expenses which might cause a dispute at a later stage.  

deduction

/dɪˈdʌkʃ(ə)n/

Noun

“the action of deducting or subtracting something”

#4: Breach

In the unfortunate case that a partner or party is found to be in breach of an agreement, it is important that you have taken the necessary measures to prepare beforehand.

breach

/briːtʃ/

noun

“an act of breaking or failing to observe a law, agreement, or code of conduct”

This includes all partners drawing up and agreeing upon potential remedies that should be made available to those who were not in the wrong. 

This clause will usually provide that a partner or party has a right to claim specific performance or even cancel the agreement in some instances where another partner is found to be in breach. 

Example:
In the case of the person selling the hats partnering with the owner of the webstore in the previous example. If the web store owner refuses to sell the hats or fails to declare correct profits/revenue as initially agreed upon in the contract, he/she will be in breach of the contract.

#5: Force Majeure Event

This is somewhat of a technical legal term. 

It simply means an incident or event beyond the reasonable control of all partners or parties which has a significant impact on the ability of one or both of the parties to be able to perform in terms of the agreement.

      force majeure 

         /ˌfɔːs maˈʒəː/

         noun

         “unforeseeable circumstances that prevent someone from fulfilling a  contract”

The force majeure clause will normally state that the interrupted party may be relieved of their duties and obligations for the duration of the force majeure event and its consequences, provided that the interrupted party notifies the other of the event.

In the event that a force majeure event continues for a prolonged period of time, this clause would normally specify how long the force majeure event may continue for before the parties would be permitted to either negotiate a reconstruction or terminate the agreement.  

Example:
An example of a force majeure event may be a pandemic such as COVID-19 which may make it impossible for you to meet the commitments of the agreement you previously negotiated with your partners. 

#6: Boilerplate clauses

Apart from the above, all Profit and Revenue Share Agreements should contain standard boilerplate clauses (also commonly referred to as standard or general clauses). These clauses are included in the agreement to ensure certainty and prevent ambiguity. 

        Boilerplate

        /ˈbɔɪləpleɪt/

            noun

            “standardized pieces of text for use as clauses in contracts”

These clauses would include, for example:

  1. Domicilium and Notices 
  2. Governing Law and Jurisdiction 
  3. Dispute Resolution Procedures
  4. Non-Variation of Agreement Provisions
  5. Severability Provisions
  6. Whole Agreement Provisions
  7. Non-Waiver
  8. Assignment

Boilerplate clauses, although commonly included at the end of agreements, are just as essential as the other clauses. They are often varied and may be confusing which is why we have written another full blog dedicated to explaining just these, here

Over to You

We know that drawing up any legal contract or entering into a business agreement is daunting. What we also know is that proper contracts are the essential building blocks of your business. 

But, the task of producing a Profit or Revenue Agreement (or any business contract for that matter) should not deter you from taking the necessary steps in your business’ journey.

In the past, you had two options. The first included exorbitant legal fees and the second involved you drawing up your own agreements (and possibly excluding key clauses). 

Hello Contract is changing all of that for the ordinary South African business.

At Hello Contract we believe in an entrepreneurial future. By generating professionally automated and affordable contracts, we strive to provide people with the tools necessary to build their company, and take control in building their own future.

Shop Now, for an automated Profit Share Agreement or Revenue Share Agreement.


Internship Agreement

Internship Agreements in South Africa – All you need to know.

Internship Agreements in South Africa – All you need to know.

An Internship relates to the education which an intern shall receive while rendering services for the principle, together with insight and experience into the business of the principle. An Internship Agreement regulates the relationship between an intern and a principle.  It is important to understand the contents of an Internship Agreement and the clauses therein. 

In this blog, we evaluate some of the key concepts and clauses that should be included in all Internship Agreements and provide some background on why these are important!

If you would like to go directly to our shop and purchase our automated Internship Agreement, click here: Internship Agreement 

Contents of this Blog 

  1. Nature of Appointment 
  2. Commencement and Duration
  3. Premature termination
  4. Services
  5. Transport
  6. Remuneration
  7. Sick Leave 
  8. Family Responsibility Leave 
  9. Maternity Leave 
  10. Supervision
  11. Working Days and Hours 
  12. Confidentiality
  13. Intellectual Property 
  14. Domicillium
  15. Liability and Indemnity 
  16. Breach
  17. Dispute Resolution 
  18. Boilerplate clauses 

Nature of Appointment

The Nature of Appointment clause is very important because it describes the type of relationship between an intern and their principle.  The legal relationship between the two is important because it then provides for the legal protection that will be available to both the intern and the principle. Generally, interns enjoy different legal protection from employees and the Nature of Appointment clause will in most cases state that the intern will be seen as an independent contractor. The nature of the relationship being that of a principle and contractor has an effect on the interns benefits. For example, an intern is not protected against dismissal nor entitled to minimum wage. It is important that the principle makes it clear, that the intern will not be entitled to the benefits that are afforded  to employees such as fringe benefits and employment security. The clause also states whether the relationship between the intern and the principle will be continuous or result in formal employment. 

In the case of Smit v Workmen’s Compensation Commissioner, the court summarised a list of factors that outline the difference between an employee and an independent contractor. An intern meets the requirements of an independent contractor and Section 1 of the Basic Conditions of Employment Act  also excludes independent contractors from the definition of an employee meaning that independent contractors are not privileged to them same benefits as of an employee. The effect of this includes but is not limited to the following:

  • The principle will not be bound to make payments to the Intern in instances where the Intern goes on sick/annual leave; 
  • The principle does not need to observe the employment laws when terminating the agreement with the Intern;
  • Tax responsibilities of the Intern’s income rest with the Intern. 

It is usually to the advantage of the principle that the Intern is defined as an independent contractor rather than an employee because it lessens the principles obligations towards the Intern. 

Commencement and Duration

The duration and time of engagement must be agreed upon by both the intern and the principle. The dates in which the Intern will start rendering their services, the term/duration period for which the Internship will last and the date in which the agreement will be terminated should be included within the agreement . Notice periods in respect to early termination should also be provided. The Internship Agreement will also state that termination of the agreement prematurely, will not constitute a dismissal.   

It is possible that a contract may be terminated in a number of ways which do not constitute a dismissal as defined in s 186(1) of the Labour  Relations Act. In the instance of fixed –term employment contracts such as Internship Agreements entered into for a specific period or  expire upon the happening of an event, the termination of such a contract would ordinarily not be considered a dismissal. It has been the position in common law that the expiry of the fixed term- contract of employment such as an Internship Agreement does not constitute termination of the contract by any of the parties. It is rather seen as an automatic termination ex lege (by operation of law) rather than a dismissal. The practical effect of this is that, the intern does not have the right to institute a claim of unfair dismissal should the principle terminate the agreement for unfair or unjustified reasons. 

Premature Termination 

In the event that there is a disagreement between the intern and the principle and the principle wishes to prematurely terminate the agreement, it is important that a Premature Termination clause provides for such instances within the contract. The intern will often not be entitled to receive any termination payment (compensation in lieu of notice) because the nature of the relationship between the intern and principle is that of two independent contractors and allows the principle to terminate the agreement freely for any reason which the principle deems reasonable or in some instances no reason at all. 

Services 

It is important that the services that the intern will be rendering are clearly defined within the Agreement to avoid uncertainty and ambiguity.  It is common that interns work remotely for the principle and the Services clause will often include a statement stating whether the intern will be rendering their services remotely or through office attendance. 

Remuneration 

Interns may or may not receive compensation for the work they do. If the agreement between principle and the intern provides that the intern be paid, the payment amount, date of payment and method of payment  must be clearly stated within the agreement. Any deductions that will be made to the interns compensation must be clearly stated.   

Interns are liable to pay tax as they are considered to be earning an income. However, this only applies if they earn a monthly salary/ stipend of R6 500 and above and so if the Intern is earning below the South African Revenue Services threshold at that time, they will not be liable to pay tax. 

The intern will not be liable to pay to the Unemployment Insurance Fund. The Unemployment Insurance Act and Unemployment Insurance Contributions Act apply to all employers and workers, but not to –

  • workers working less than 24 hours a month for an employer;
  • learners;
  • public servants;
  • foreigners working on contract;
  • Employees in receipt of an old age pension are, since 07/2/2007, no longer excluded from contributing towards UIF; or
  • workers who only earn commission.

An intern is considered to be a learner and accordingly will not be liable to pay towards the Unemployment Insurance Fund. It is uncommon for there to be other deductions such us medical aid to the remuneration of an Intern. 

Sick Leave 

Sick leave is the leave that is granted when an individual is ill and cannot work. Legislation such as the Basic Conditions of Employment Act provides for the number of sick leave days that an employee is afforded. Such legislation does not apply to independent contractors such as interns, however the sick leave concept is often incorporated into an Internship Agreement. It is important that the number of sick leave days that will be afforded to the intern are agreed upon and stated within the agreement. In an Internship Agreement, the intern is often entitled to a pro rata amount of sick leave. The agreement will also state what procedures should be followed when the intern has taken sick leave, for example the requirement of a doctor’s note alluding to the intern’s illness which resulted in them being absent from work. 

Family Responsibility Leave 

Family responsibility leave is the leave granted to someone to allow them to attend to family responsibilities like the sickness of a child or the death of a parent. Although a principle is not obligated to grant family responsibility leave, it is a concept that is often included within an Internship Agreement. It is important that the number of days of family responsibility leave be clear in the agreement. The instances in which such leave can be taken should also be stated within the agreement. 

Maternity Leave 

Legislation provides that female employees are entitled to 4 months unpaid maternity leave when they are pregnant. While such legislation does not apply to independent interns, the maternity leave concept is often included within agreements with independent contractors such as the Internship Agreement. A principle may decide that the female worker be compensated even while on maternity leave. The Internship Agreement should clearly state whether or not the intern’s maternity leave will be paid or unpaid. Some Internship Agreements may also provide that the Internship Agreement will not be extended should the intern become pregnant.

Supervision 

An Internship Agreement involves educating and training the intern. Naturally this would mean that the intern will be under the supervision of the principle or any person designated by the principle. It is important for the intern to be aware of who will be supervising them during the course of their engagement with the principle and the reporting structures therein. 

Working days and  Hours 

The working days and weeks for the intern need to be agreed and stated within the agreement. For example, the intern may only work 3 days and week for 7 hours on each day. 

Confidentiality 

The intern will obtain knowledge of the principles trade secrets or private and confidential information about the principle and the principle will usually prefer that the information remains private. It is important that proprietary and confidential information is protected and the agreement states that the Intern may not share the principle’s private and confidential information to any third parties and doing so will be considered breach of contract.

An employer will generally include a confidentiality clause in a contract, especially if the intern will be working with proprietary information and or top executives. In most cases, confidentiality clauses are signed when an individual is first hired and are valid through the termination of their Internship or, in some cases, a period of time after Internship  ends. On termination of engagement, a formal release document may also include an undertaking whereby the Intern is to refrain from disclosing certain confidential information.

Intellectual Property 

Intellectual property is any product of the human intellect that the law protects from unauthorized use by others. An Internship Agreement should provide for the ownership of  intellectual property rights. The agreement should state who the intellectual property rights belong to. As with most employment agreements, an Internship Agreement will often state that intern will cede all the intellectual property rights obtained during the duration of the engagement to the principle. The agreement may also include that, although goodwill may be accrued, there will be no  payment to the intern for goodwill. 

Unless there is a statement to the contrary, a work created by an employee under a contract of service such as an Internship Agreement, in the course and scope of their agreement will be automatically assigned to the employer. This was confirmed in the judgment of King v South African Weather Service 2009 (3) SA 13 (SCA); [2009] All SA 31 (SCA).

It is still important to include this clause in the intern’s agreement as this will mitigate against a possible issue arising at a later stage as to the ownership of the particular intellectual property. The Internship Agreement may then also be relied on as being a written assignment in the event of the former Intern being recalcitrant. 

Domicilium 

The addresses that the parties have chosen to be their designated addresses in respect to communication and notices is referred to as  domicillium. The domicillium must be included within the contract for clarity and to ensure that notices are sent to the correct address. Procedures that should be followed should one of the parties change their addresses should also be included, to ensure that the parties can communicate effectively and to avoid communication being missed. For example, the agreement may include that a notice of change of address must be sent in writing within 10 days of the change of address. 

Liability and Indemnity

It is of importance that both parties are aware of who assumes the risks that may be involved when entering into an agreement. Often in an Internship Agreement, the intern agrees to take on all risks associated with entering into an Internship Agreement with the principle. The intern usually agrees to indemnify and holds the principle harmless for any injuries suffered or losses incurred during the engagement between the parties.

Due to the high cost of risk, the principle in an Internship Agreement usually wants to assume minimal risk and so naturally the principle will ensure that the contract states that the intern will be liable for all risks involved with entering the agreement. To avoid problems that may arise at a later stage, where the intern institutes a claim against the principle for any injuries or losses suffered, it is important that the agreement clearly states who will bear the risk and be liable for losses or injuries. 

Breach 

It is important that a contract provides for instances when either the principle or the intern are found to be in breach of contract and the procedures that should be followed thereafter, including clearly stated notice periods. The remedies that are available when one is in breach should be clearly stated, as well a clear indication of who be bear the costs incurred when seeking remedial action or costs incurred as a result of the breach. 

It is common that a party may be found in breach of contract and the Breach clause provides for such instances in detail. It is important know when one can institute legal action against another party for breach of contract as well as the remedies that are available to an aggrieved party. Should the case of breach of contract reach the courts, the courts will consider whether the provisions within the agreement were complied with and take into consideration which remedies the parties agreed to rely on in the event that a party is found in breach. This clause makes it easier for a court to rule on a matter of breach of contract because the parties would have already agreed to what action should be taken, should a party be found in breach. 

Dispute Resolution 

In the event of that a dispute arises between the parties, it is important the agreement states which dispute resolution methods are preferred  and the procedures that should be followed. The agreement should also clearly state which court will have jurisdiction over any dispute that may arise from the agreement. 

It is important that parties agree to which procedure they will follow should a dispute arise before a dispute arises. The South African Law Commission Issue Paper 8  Project 94 Alternative Dispute Resolution highlights the alternative dispute resolutions that are favourable in employment agreements such an Internship Agreement which include mediation and arbitration. Disputes arising from an employment contract may also be resolved under the conditions and pursuant to the procedure provided for in Individual Labour Disputes Resolution Act.

Boilerplate clauses 

Apart from the above, all Internship Agreements should contain standard boiler plate clauses (or general clauses) which are included to ensure certainty and prevent ambiguity. 

These clauses would include, for example:

  1. Severability
  2. Variation
  3. Indulgences
  4. Assignment
  5. Whole Agreement 

To understand boilerplate clauses more, please read here.

At Hello Contract, we have taken into account all of the above considerations so that you can create a version of an Internship Agreement that is perfectly suited to your needs. All that you need to do is select the appropriate document that you would like to generate, answer a few questions, and our document generation software will automatically compile the Internship Agreement here



Boilerplate clauses – what are they and why are they important?

Boilerplate clauses – what are they and why are they important?

You will often hear contract drafters referring to boilerplate clauses and you are probably left wondering what boilerplate clauses are and why they are important.

It is important to know the different clauses that should be in your contracts and what they mean. In every contract, there are clauses that are called Boilerplate clauses. Boilerplate clauses are also called standard or general clauses. These clauses are usually at the end of each contract. They provide instructions on how to act in a variety of situations and clarify the relationship between the parties. In order to understand contracts it is important to understand the meaning and importance of these boilerplate clauses.  

This blogs aims to educate you as much as possible on the Boilerplate clauses that you should look out for in your contracts and why these are important. 

Contents of this Blog 

  1. Variation
  2. Severability
  3. Whole Agreement
  4. Indulgences
  5. Assignment
  6. Non-Disparagement
  7. Return of Information 
  8. Restraint of Trade

Variation

Before you sign a contract, it is important that you know how that contract may be amended or changed and a Variation clause tells you if the terms of a contract can be changed and if yes, how. This clause is important for clarity and it ensures that the terms of the contract are not varied accidentally or informally, and to stop any one of the parties from falsely claiming that a contract has been varied when it has not .

In 1964, the Supreme Court of Appeal, in Graanmaatskappy Bpk v Shifren , held that contracting parties could protect their interests by limiting their future contractual freedom by including a Variation clause into their contracts. This clause often provides that variation is only valid if done in the form prescribed in the relevant contract (typically in writing). This clause ensures certainty and formality and the inclusion of such clauses into contracts has since coined the term, ‘The Shifren Principle’.

Severability

It is possible that a part of any contract may be declared invalid or illegal and naturally, the rest of the contract will be deemed as illegal or invalid as well. The Severability clause provides for such instances, where parts of the contract are no longer enforceable. This clause states that in such a case, the rest of the contract will still be valid and enforceable and only the part that has been rendered invalid and illegal will be unenforceable. This clause is of extreme importance because without it, the whole agreement will not be enforceable and deemed invalid, if a part of it is rendered  invalid or illegal.

The declaration of a clause within a contract being invalid or illegal poses a question of what happens to the rest of the agreement? In accordance with the prudence principle, contracts now include severability clauses to provide for such cases. The Severability clause provides that should a part of the contract be deemed invalid or illegal the rest of the agreement will still be valid and enforceable. However, the presence of such a clause within a contract is only prima facie evidence that the clauses will be severable and a court will need to sever the parts of the contract.

In Malesela Taihan Electric Cable (Pty) Ltd vs Fidelity Security Services (Pty) Ltd, the court discussed the factors that would be taken into consideration when deciding whether parts of a contract will be severable and these include but are not limited to; whether it was the parties intention to sever the clauses which can be evidenced by a Severability clause, whether the illegal/invalid part of the contract is distinct from the rest of the contract and whether that part is not a subsidiary of a  main part of the contract. When the Severability test discussed above is passed, a court will render only the invalid or illegal part of the contract unenforceable, and the rest of the contract will remain valid and enforceable. 

Whole Agreement 

It is normal that there may be smaller agreements, or side discussions which parties make before agreeing to the final terms of the actual contract, and there may even be other agreements that parties make after signing a contract. The Whole Agreement clause stipulates that everything comprising the parties agreement has been reduced to writing within that contract and that there are no other terms or undertakings that will be enforceable if they do not fall within the contract.

It is important to ensure that any previous agreements and undertakings are included within the contract or they will not be enforceable because of the Whole Agreement clause. This clause provides contractual certainty and prevents parties from relying on any other agreements or conversations other than those in the contract. 

In AXA Sun Life Services Plc v Campbell Martin Ltd and Others, a foreign case, the court agreed that if parties want to effectively exclude liability for some representation, a clear statement to that effect will be required and that statement is usually the Whole Agreement clause.  The utterance in a Whole Agreement clause usually includes a declaration that the document in which it appears, and any documents referred to, contain the totality of the parties’ agreement. The clause is usually also drafted to include a statement of non-reliance and an express exclusion of liability. 

Indulgences

Indulgences are ‘favours’ or ‘relaxations’ granted by one party to another. For example, a company  may give an individual an extension on the due date of a payment. The party that grants the favour is considered the grantor, while the other party is considered the grantee. The Indulgence clause provides that the relaxation does not constitute a waiver of the grantor’s rights. This means that, for example, a company still has their right to claim payment from the individual in terms of an agreement even if it did not act and try claim the outstanding payment previous.

The court in Triodos v Dobbs confirmed this position and agreed that “the resulting obligations did not replace the original obligations” because of the Indulgence clause. A clear understanding of this clause is important to ensure clarity and avoid the unnecessary losses that may occur based on a possible assumption, on the part of the grantee, that the indulgence constitutes a waiver of the grantos rights. 

Assignment  

An assignment clause is a clause included in contracts that allows or disallows  a person or a business the opportunity to assign or completely transfer their contractual obligations, rights, and benefits to a separate entity. For example, the Assignment clause may not allow an accounting clerk to give somebody else to their same job.  This clause is important to provide certainty on whether the rights and duties may be transferred to any other person or entity. This clause is important because it protects parties from uncontrolled transfer of contractual rights and obligations. The Assignment clause may also include exceptions and the instances where the contractual rights and obligations of parties may be transferred. 

The basic law is that A cannot transfer rights or obligations to B that are under an agreement with B, without B’s consent. In contracts where an Assignment clause provides that rights and obligations may not be transferred, any subsequent transfer of rights thereof will be considered void ab intio based on the nemo plus iuris rule which states that one may not transfer more rights than those which one possesses. 

Non-Disparagement

The Non Disparagement clause which is also known as the Protection of Reputation clause restricts a party to a contract from taking any action that may negatively impact the other party, its reputation, products, services, management or employees. Most of these clauses usually include a description of the prescribed action or examples of prohibited actions. For example, a Non-Disparagement clause may prohibit an employee from speaking ill of their employer. 

While non-disparagement clauses are not discussed often, it is of paramount importance that you know the actions that you may or may not take and protects the reputation of the parties. You naturally would not want to be apart of an agreement that does not ensure the protection of your reputation and so it is important to ensure that your contracts include a Non-Disparagement clause. 

Non-Disparagement clauses have become increasingly popular in contracts with the increase in awareness of individuals rights to freedom of expression. The National Media v Bogoshi case discusses the right to reputation and freedom of expression. It is important to note that the right to reputation which is protected in the Non-Disparagement clause does not take away from the right of freedom of expression and the persons maintain their right to express themselves notwithstanding the presence of a Non-Disparagement clause in a contract, for as long as their expressions consist of the truth. 

Return of Information 

A Return of Information clause provides for instances that involve the sharing of proprietary information such as trade secrets, confidential information etc. This clause typically contains requirements to either return or destroy of such information. Most business contracts will include a Return of Information clause as it ensures that parties will keep and protect their proprietary information. Such a clause may also provide for instances in which information is not returned or destroyed and what you can do in such a case. 

The exchange of proprietary information is common and almost unavoidable when parties enter into a contract. After the conclusion of a contract, it is important that the information is return or destroyed. However, it is common that parties do not return or destroy information received during the course of an agreement and this practice has resulted in the increasing popularity of a Return of Information Clause. With the presence of a Return of Information clause in a contract, retaining such information after the conclusion of a contract will be considered breach of contract and may be considered theft and that may constitute grounds and good reason for immediate legal action against the non-complying party.

Restraint of Trade 

A restraint of trade clause limits the ability of an employee to accept future employment which could be to the detriment of their current employer. A Restraint of Trade clause has a similar effect as that of a Non-Solicitation clause. The Restraint of Trade clause is normally included in an agreement between two parties that work closely together, and neither party wants to allow the other party the opportunity to steal their respective staff members or share any confidential information with any other party.

This clause has become increasingly popular with the rise of cases where individuals approach the clients or employees their former employer on behalf of their new employee or their own business. This clause is very important to both the employer and employees. On the one hand, it protects the employer from the potential loss of clients/employees, and on the other hand, it provides clarity to the employees that they may not solicit the employers clients or employees, else the employee will be found to be in breach of this contract. 

There is often a misconception that a Restraint of Trade clause provides that an employee cannot seek any employment after their employment with their current employer comes to an end. The court in Reddy v Siemens [2006] SCA 164 stated that a Restraint of Trade clause only prevented the employee from taking up employment with the competitor of the former employer. It does not prevent the employee from being employed, it merely limited the specific employer. Accordingly the restraint of trade agreement was found to be valid and enforceable.

At Hello Contract, the contracts on our website contain carefully drafted boilerplate clauses. All that you need to do is select which contract you would like to generate, answer a few questions, and our contract generation software will automatically compile the contract of your choice at an affordable price.

eCommerce Website

E-Commerce websites – The legal document essentials

E-Commerce websites – The legal document essentials

An e-Commerce business predominantly involves the use of a website on which products and/or services are sold through. These products might be physical products delivered through couriers or might be digital products delivered by means of email or download link (such as Hello Contract).

In setting up and running an e-Commerce website, you, as the website owner, need to set expectations and binding rules as between yourself and your customers.

These rules are predominantly set up in three separate legal documents which should be viewable on your e-Commerce website and to which each customer needs to agree.

This article will aim to educate you in the function of each document, as well as the important decisions that you need to make and which pertain to your e-Commerce website in order to correctly compile these documents without the help of lawyers.

Head directly to our shop for the three documents you need:

Contents of this blog

e-Commerce website terms of service:

An e-Commerce Website Terms of Service is the main governing document of your website, and sets out the overarching and binding obligations as between the e-Commerce website owner and its customers.

An e-Commerce website terms of service should at the very least have clauses in it which pertain to the following:

Delivery of goods and their timeframe

One of the most essential aspects of an e-Commerce Website Terms of Service is specifying the manner of how goods are delivered to a customer and the timeframe in which you intend to deliver those goods. For example, should you specify that a delivery might take up to 14 working days, and the customer begins to complain that they have not received the goods after day 5, you may refer them to your e-Commerce Website Terms of Service in order to show that you are only obliged and will have the goods delivered within 14 calendar days of the goods being ordered.

This clause is also important in instances when you use external couriers, so that you are able to indemnify yourself against late delivery by an external courier, as you do not have control over the exact date and timeframe in which they might deliver.

This clause is also important from the perspective of determining when risk associated with the goods transfers from you to the customer.  It is ideal to record that upon delivery to the customer, whether the customer is at the premises for delivery or not, the risk associated with the goods and their being stolen or damaged, for example, transfers immediately on delivery to the customer.

Payment methods:

It is important to record exactly what payment methods you allow on your e-Commerce website in order that customers may not try negotiate alternative payment methods which might be risky or simply not accepted by you.  Furthermore, if you accept payment by credit card and the name payment processor is mentioned, it should be recorded that the customer acknowledges that it is subject to the terms and conditions of the payment processor rather than just being subject to your own terms and conditions.

Warranties by a customer:

The customer needs to warrant that any information that they provide to you is accurate and true, that they are not impersonating any other person, not violating any laws in making the purchase, such as a person being over the age of 18 should you operate an e-Commerce website which deals in liquor deliveries, for example.

Unauthorised use of the e-Commerce website:

Users should undertake that they will not post anything to your website which is objectionable or is unlawful, spam the website, make use of unsolicited mass emailing techniques, introduce a virus, worm, Trojan horse or malicious code, redistribute or use your information for commercial purposes and the like.

Limitation of liability:

It is very important that you record that a customer is required to use your e-Commerce website at their own risk.  Further, that you will not be liable for any use or conduct in the connection with their use of the website at all.

It should be recorded that the contents of the website are the subject of your copyright. A copyright is essentially a protection that is afforded to a piece of creative work. This might include pictures, logos, the general look and feel of the website, audio files and the like. Generally, copyrights do not need to be registered and are created automatically.

As such, the images on your website, unless they are from third party manufacturers and suppliers are the subject of copyright protection, and should be recorded as such.

Prohibition on reverse engineering of the website:

One should also record a general prohibition that users cannot take your website and simply reverse engineer it for their own purposes in an attempt to copy your website based on the source code thereof, which comprises your intellectual property.

Breach provisions:

Clear terms, setting out what the procedure should the customer or yourselves not adhere to their respective obligations in terms of the e-Commerce Website Terms of Service should be recorded. These are what are known as breach provisions.

Normally, a breach provision will provide that should either party commit a breach of the agreement, such as the customer not making payment of the goods despite having ordered them, or your failing to deliver the product to the customer, the innocent party will be entitled to place the other party in breach, and require that the other party rectify the breach by either making payment of the goods (in the case of the customer breaching) or delivering the goods (in the case of you failing to deliver the product).  Thereafter, and should the breach continue, the innocent party will either be entitled to cancel the transaction and/or claim damages through a court of law. 

Dispute resolution:

Related to the above, in the event that there is a dispute between yourself and your customer, a procedure to resolve any dispute should be set out. 

Normally, this dispute resolution procedure will involve the parties having to try and attempt to settle the dispute for a certain period of time informally between themselves, and if this fails we would suggest attempting mediation with a qualified mediator for a further period of time, and thereafter, should that fail, either looking at permitting the parties to take it to court, or otherwise, arbitration.

e-Commerce Website Returns Policy

Any e-Commerce Website Returns Policy sets out the circumstances in which goods which are purchased from your e-commerce website may be returned by the customer who purchased them.

An e-Commerce Website Returns Policy should at the very least have the following terms contained in it:

Circumstances in which returns are allowed:

It is very important to record when returns will be permitted. For example, this might include that the incorrect product was delivered to the client, the client no longer wants the product, or that a product which is of the incorrect size or specifications was delivered to the customer.

Timeframe in which returns are permitted:

The timeframe for a return should also be recorded.  This will prevent customers from using the product for a significant period of time prior to their return.  For example, you might impose a 14 day window from the date of purchase in which a customer is required to initiate a return through your website.

Choices upon return:

Once a product has been returned, your website might allow for one or more of the following, which needs to be recorded:

  • a customer has their account credited;
  • the amount be refunded to them; or
  • that a replacement product be delivered to the customer.
How returns are initiated:

It should clearly be recorded what the procedure is to return a product. This might include, for example, that an email is sent to a specific email address or that there is a page on your website with a form devoted specifically to returns.

Furthermore, it should set out the contents of what might need to be included in the return request. For example, this might include the reason for the return, the choice as to what they would like to occur upon the return, such as their account being credited, and the like.

Condition of the product returned:

It is very important to stipulate the circumstances in which you will permit a product to be returned. For example, this might include that the product needs to be undamaged, unused and in original packaging. It goes without saying that products which have been extensively used should not be permitted to be returned to you.

Manner of return:

Should you have the ability to collect the product to be returned from the client, it should be mentioned that the customer has the choice of the product being collected from them or that they may deliver the product to you for the return.

Product inspection:

We suggest that it is very important to include a clause in your e-Commerce website terms of service that permits you to inspect the product which is being returned prior to you validating its return.

Website Privacy Policy

A Website Privacy Policy is required by law in terms of the Protection of Personal Information Act No 4 of 2013.  It sets out what personal information you collect from customers, what you do with that personal information, and who that information is shared with.

A Website Privacy Policy should at the very least set out the following:

What personal information is collected:

In operating and e-Commerce website, generally speaking, you will collect the following personal information from a customer which needs to be recorded in your Website Privacy Policy:

  • name of the customer;
  • email address;
  • physical address for delivery;
  • payment and/or credit card information.

To the extent that you collect any further personal information from a customer in the process of their ordering through your e-Commerce website, please note that this needs to be recorded in the Website Privacy Policy as is required by law.

The reason for collecting personal information:

Your Website Privacy Policy should clearly set out the reason for which the personal information is collected.  For example, this most likely will include the fact that the information has been collected in order that you as the e-Commerce website owner, have enough information in order to accurately and timeously deliver the product to the correct customer.

Further to the above, it also might include the fact that you might in future market to the customer of certain of your other products and/or services. 

All reasons for which you collect personal information need to be clearly recorded in your Website Privacy Policy.

 Sharing of personal information:

It needs to be recorded the categories and types of persons and/or entities to which any personal information is shared with.

For example, and in the circumstances of an e-Commerce website, you would need to share address information with any couriers which will deliver the products. In addition, payment information will be shared with the necessary payment processors of your website.

All the documents you need on our website:

At Hello Contract, we have all of the above documents available on our website so that you can generate these documents entirely on a self-service basis without getting lawyers involved.  All that you need to do is select the appropriate documents that you would like to generate, answer a few questions and our document generation software will automatically compile the e-Commerce Website Terms of Service, e-Commerce Website Returns Policy and Website Privacy Policy for you.

All of these are available at the following links:

  1. e-Commerce website terms of service;
  2. e-Commerce website returns policy; and
  3. website privacy policy.
Independent Contractor

The Definitive guide to Freelancer/Independent Contractor Agreements in South Africa (For both the Contractor and Principle)

The Definitive guide to Freelancer/Independent Contractor Agreements in South Africa (For both the Contractor and Principle)

When creating or determining the correct content to include in a Freelancer/Independent Contractor Agreement, it is always best to understand what the importance is of the clauses therein.

A Freelancer/Independent Contractor Agreement in its most basic form looks to assign a task or tasks to a person or entity which is external to the company or organisation. For example, outsourcing online advertising or social media campaigns, blog writing, website design, logo creation or the like.

In this blog we evaluate some of the key concepts and clauses that should be included in all Freelancer/Independent Contractor Agreements, and provide some background on why these are important!

If you would like to go directly to our shop and purchase our automated Freelancer/Independent Contractor Agreement, click below:

Contents of this Blog

  1. Nature of the Agreement
  2. Duration and Termination
  3. Principle and Contractor obligations
  4. Confidentiality and Non-Disclosure
  5. Intellectual Property
  6. Boiler Plate Clauses
Nature of the Agreement

It is important that the contractor and the principle are recorded as being two parties independent of each other. As such, the contents of the Freelancer/Independent Contractor Agreement should state that the contractor is not an employee of the principle, and as such, their relationship is not subject to the employment laws of South Africa, such as the Basic Conditions of Employment Act.

This is important for a number of reasons, some of which are given below:

  • It ensures that tax responsibilities of the contractor’s income rest with the contractor;
  • It allows for terminating the contract in a manner where the principle does not need to observe the employment laws of South Africa; and
  • Will not bind the principle to making payment to the contractor in instances where the contractor takes annual or sick leave.
Duration and Termination

The duration and time of the engagement should be agreed to. This might, for example, be for a specified number of weeks or months, a specified project, or an indefinite period.

Hand-in-hand with the above should be how, and in what circumstances, a party to the contract may terminate it. For example, the contract may specify that either party may terminate on one month’s notice to the other, or a party may only terminate on the occurrence of a certain event, or not at all, but rather only terminate upon the expiration of the agreement.

Principle and Contractor obligations

The contract should clearly set out the roles and responsibilities of the respective parties.

In relation to the principle, this will normally entail what fees need to be paid to the contractor, and when those fees need to be paid.

With regard to the contractor, the exact nature and extent of the services that the contractor is to provide should be recorded, along with timeframes for delivery. This will allow for easy and objective metrics with which to measure the service levels and performance of the contractor, and to hold them accountable.

Confidentiality and Non-Disclosure

Naturally, both parties would like to prevent any of their own trade secrets and confidential information from being copied, reverse engineered or disclosed by the other party. As an independent contractor will most likely have a number of clients, some of which might be competitors to the principle, this is especially important for the principle to protect.

Intellectual Property

A vast majority of intellectual property, including inventions, product designs, creative works etc, may be created by contractors.

Unlike an employment relationship, by default, intellectual property, such as copyrights, which are created by a contractor are owned by that contractor.

As such, given the nature of the work, it is very important to ensure that any and all intellectual property that is created by the contractor for your use, is transferred to and is owned by you.

To the extent that your Freelancer/Independent Contractor Agreement does not contain an intellectual property assignment clause, we recommend that, at least for works which comprise copyrights, a separate copyright assignment agreement be entered into.

For more information on Copyright Assignment Agreements, and why you need one, please read here.

Boiler Plate clauses

Apart from the above, all Freelancer/Independent Contractor Agreements should contain standard boiler plate clauses (or standard clauses) which are included to ensure certainty and prevent ambiguity.

These clauses would include, for example:

  1. Non-Solicitation of staff measures
  2. Dispute Resolution procedures
  3. Non-Variation of Agreement provisions
  4. Severability Provisions
  5. Whole Agreement provisions: Representations made outside of the agreement do not comprise the agreement
  6. Indulgences: The fact that if a party does not act on a breach, for example, it does not mean that that inaction can be relied on in future;
  7. Assignment: The agreement may not be transferred to any other parties

All the documents you need on our website: At Hello Contract, we have taken into account all of the above considerations so that you can create a version of a Freelancer/Independent Contractor Agreement that is perfectly suited to your needs, and which is available here

Looking for something else? Take a look at our other blogs:

Business contracts

6 Business Contracts you, and your business, need

6 Business Contracts you, and your business, need

Contracts… Let’s be honest, most entrepreneurs would far prefer to spend time on something different. Contracts always seem to get in the way of getting on with daily business.

However, it really is incredibly important to spend time in advance, on the preparation of contracts. This will allow you to frame the rules of your engagement in your favour, without ambiguity, and will prevent a fall out at a later stage as parties to an agreement have a very clear idea of what is required of them.

Below are 6 very important contracts that all businesses should have in place from the start…

At Hello Contract, we deliver high quality contracts through our automated document platform for a fixed price and at highly reduced costs when compared with ordinary law firms. As contracts are the core of our business, we want our customers to fully understand the risks and obligations arising from them. In this

Table of Contents:

  1. Terms and Conditions
  2. NDA or Non-Disclosure Agreement
  3. Website Privacy Policy
  4. Employment Agreements
  5. Copyright Assignments
  6. Independent Contractor Agreement

1.      Terms and Conditions

No matter what kind of business you run, every entrepreneur will need to pull together a set of Terms and Conditions.

These are your rules, your way of doing business. You determine how you provide your products/services, from quotation all the way to termination, being strict but fair, and providing a clear idea between you and your customers of how you conduct business, what you charge, price increases, delivery times, limitations of liability and the like.

Good Terms and Conditions shorten discussions between you and your potential clients and prevent disputes. If a dispute does arise concerning a subject which is clearly recorded in your Terms and Conditions, the dispute should be stopped dead in its tracks, as the subject and its contents have been recorded and agreed to in black and white.

We offer Website Terms of Services here

2.      NDA or Non-Disclosure Agreement

Before you set out with your epic world changing product / service, you naturally want to be able to talk to your customers, partners or suppliers in confidence, without fear of your confidential information being used by them, without your permission.

The legal instrument to help enforce and protect this is known as a Non-Disclosure Agreement (or NDA for short), and prevents confidential details of your conversation being used or leaked, or from parties being able to approach directly any other persons which have been introduced by the parties to each other in confidence.

We provide a mutal NDA here

3. Website Privacy Policy

Okay, this isn’t exactly a contract, but it is required by law. A Privacy Policy records, among other things, exactly what personal information you collect from users, who you share that personal information with, and what you use it for.

A Privacy Policy need not be signed to be agreed to, but a user needs to have the opportunity to view it and is required to consent to it before you can process their personal information.

Take a look at ours right here

4.   Employment Agreements

Congratulations, you have employed staff! Of course you trust them completely, and hope that nothing will ever go wrong.

This is always the thought process at the beginning of the hire, but setting clear expectations of salary, leave, duties, notice periods and the like is crucially important.

We have a few ready to get you started here:

In the lifespan of your business you will most likely outsource hundreds of tasks to independent parties and freelancers. These might entail for example, software development, blog content, logo creations and the like.

Outsourcing tasks of your business to external people not employed by you has one main unintended consequence, although you pay the outside party for work done, you do not own the work that they create, as these are all owned by the person who authored them, being the external party.

A Copyright Assignment Agreement is the correct legal document to transfer the above ownership to you.

A valid assignment of copyright must be in writing and signed by, or on behalf of, the external party.

Feel free to purchase one here.

6. Independent Contract Agreement

In today’s interconnected world, where freelancers are available from all corners of the globe, bringing together expertise on a vast array of topics has never been easier. In this regard, you will in the lifetime of your company, engage with external services providers that you do not employ. These relationships are normally regulated by an Independent Contractor Agreement.

An independent contractor is different to an employee in that you employ an employee (to state the obvious) and have control over their day to day services, but only engage, an Independent contractor when and if you need them and don’t have much control over their day to day service renderings.

It is important to regulate the relationship between you and your independent contractor by recording obligations, expectations, time for delivery, payment guidelines, intellectual property ownership and the like.

You can purchase our fully automated one here.

About Hello Contract

Hello Contract is SA’s first Legal Document Platform. We provide high quality legal documents and support at highly discounted price. We are here to educate entrepreneurs and business owners on the opportunities of well written contracts. Today is the day to take full advantage of the digital age and Legal Tech.

Sale of Shares

Sale of Shares – Do it properly without a lawyer

Whether you are looking to purchase shares in a private company, or sell your shares in a private company, you will need to go down the administrative road of conducting the sale of shares. This would ordinarily entail having to go to a firm of attorneys who would need to prepare and draft the necessary documents and contracts in order to properly and effectively transfer those shares.

Unfortunately, the cost of lawyers can be prohibitively expensive, but ordinary business owners are left with no choice because they do not themselves know how to go about properly and effectively attending to a sale of shares transaction.

This article aims to educate you as much as possible, without going into to much legalese, of how to conduct and go about a sale of shares transaction without the help of lawyers.

The three basic categories of documents that you will require are the following:

  1. Sale of Shares Agreement;
  2. Share Transfer Form; and
  3. Authorising resolutions of both the shareholders and directors.

Sale of Shares Agreement:

Quick links to:

A Sale of Shares Agreement is the main governing document that serves to set out the details of the transaction, the obligations of each party, the purchase price to be paid, as well as the relevant time frames for the sale.

A Sale of Shares Agreement should at the very least have terms which pertain to the following:

Purchase Price:

It is important that, in order for the purchaser and the seller to clearly understand the expectations as to how much the shares will be sold for and the terms surrounding how the payment is to be made, the purchase price be recorded with sufficient detail in the Sale of Shares Agreement.

For example, the purchase price might be paid in one lump sum of R50 000.00 on X date, or it might be paid in instalments of R10 000.00 over 5 months, or there could be some other custom payment timeline. Which ever it is, this should be recorded.

One of the reasons that the above is so important is that in the event that payment is not made on time, there should be the ability for the seller to place the sale on hold and not permit the sale of shares to go through, and also allow for the seller to place the purchaser in breach and potentially force the purchaser to make payment of the purchase price.

Transfer Date:

It is very important to record what the actual date of the transfer will be as this date will be recorded in the requisite share register, share certificates and the like, and is a clear line in the sand to determine when the purchaser’s obligations to the company begin and the seller’s obligations in respect of the company cease.

Number and class of shares:

To ensure certainty, it is essential to record the number of shares that are being sold coupled with the class of those shares.

Alot of people when completing template Sale of Shares Agreements tend to fill in the percentage of what the sale will comprise. However, and depending on the time frame of the sale, and what other share sale transactions might be going on at the same time, the number of shares comprising the percentage might change, and as such, it is very important to record the number of shares rather than the percentage which is to be sold.

Additionally, as the company may be comprised of more than one class of shares, it is important to specify what class is the subject of the share sale.

Should this terminology be completely foreign to you, you most likely only have one class of shares in your company, and as such, the class of shares that will be transferred will be ordinary shares.

Warranties:

This might be bordering on a bit of legalese, but it is very important to understand. You do want to ensure, among others, that the seller is in fact selling shares which he in fact owns.

As such, it is important to have a clause which speaks to the warranties given by the seller that they are the sole owner of the shares, that they are not the subject of a pledge or some other form of security and that they can freely and effectively transfer the shares to the purchaser.

Confidentiality:

Ordinarily, and although this is not an obligation on the part of the parties, a confidentiality clause is ideal in that you do not want the seller or the purchaser to wilfully advertise and speak to others about the terms of the sale and what might internally be considered a sensitive and confidential matter.

Accession to the provisions of the Shareholders Agreement:

Should there be multiple shareholders of the company, and should there exist a Shareholders Agreement which was signed by the shareholders of the company, a clause which requires the purchaser to automatically agree to (accede) the terms of the Shareholders Agreement is necessary, so that the purchaser will, as from the date of the sale of shares, be bound to the terms of the same Shareholders Agreement.

Breach Provisions

Clear terms, setting out the procedure should either the purchaser or the seller not adhere to their obligations in terms of the Sale of Shares Agreement, should be included. These are what are known as breach provisions.

Normally, a breach provision will provide that should a party, such as the purchaser, not pay the purchase price on time, the seller will be entitled to place the purchaser in breach, and require that the purchaser rectify that breach by making payment of the purchase price within a specified time period, failing which the seller will be entitled to cancel the agreement and/or claim damages through a court of law.

Dispute Resolution

Somewhat related to the above, in the event that there is a dispute between the parties, a procedure to resolve any disputes should be set out.

Normally, the dispute procedure will involve the parties having to try attempt to resolve the dispute for a certain period of time informally between themselves, and if this fails we would suggest attempting mediation with a qualified mediator for a further period of time, and thereafter, should that fail, either looking at permitting the parties to take it to court or otherwise arbitration.

Share Transfer Form:

Although the Companies Act is not entirely clear on the exact nature of what and how shares are transferred, it only records that share transfers, such as a sale, should be “evidenced by a proper instrument of transfer”.

As such, along with a Sale of Shares Agreement we would advise a simple 1 pager instrument of transfer (share transfer form) which records who the purchaser is, who the seller is, the number of shares being transferred, the class of shares being transferred, the purchase price and the transfer date.

Which law is applicable to your site:

There is a possibility that your users might be accessing your site from all over the world, but you might be headquartered in a single country only. It is often cheaper to record that the law applicable to your website is the one in which you are situated, which will inevitably save you costs should you ever go to litigation. This is on account of the fact that if the litigation is to be held in a foreign country, you would have to appoint foreign lawyers, and potentially incur travel expenses and accommodation.

Authorising Resolutions:

Along with the aforegoing, there might well be certain authorising resolutions of the company which are needed.

For example, should a Shareholders Agreement exist, it will most likely have pre-emptive rights in that agreement, meaning that if a shareholder wants to sell any of their shares, they will first need to offer those shares for sale to the other shareholders before offering them to an outsider. If the sale of shares is in fact to an outside party, a Shareholders Special Resolution will need to be entered into where the shareholders waive those rights of pre-emption to permit the sale to go ahead.

Furthermore, the company will most likely need to cancel existing share certificates and issue a new share certificate to the purchaser which would require that a Directors Resolution be passed to permit this.

All the documents you need on our website:

At Hello Contract, we have all of the above documents available on our website so that you can conduct your sale of shares transaction entirely on a self-service basis without getting lawyers involved. All that you need to do is select the appropriate document that you would like to generate, answer a few questions, and our document generation software will automatically compile the Sale of Shares Agreement, the Transfer Forms and Authorising Resolutions necessary for you to conduct your sale of shares transaction.

All of these are available at the following links:

  1. Sale of Shares Agreement;
  2. Share Transfer Form; and
  3. Authorising resolutions of both the shareholders and directors.
Website Terms and Conditions

Website Terms and Conditions – Key aspects to consider

Whilst most start-ups try to take a shortcut in compiling their Website Terms of Service by simply copying and pasting some industry leaders terms and conditions which is comparable to their own and placing it on the website, this is fraught with dangers. For example, a peer to peer lending or renting platform of movable equipment might consider themselves comparable to Airbnb and simply copy Airbnb’s terms of service. Apart from the fact that this is copyright infringement, there will be aspects within Airbnb’s terms and conditions which are worlds apart from how you intend to function your business, but are now legally binding on you. For example, cover of up to $100 000 in respect of the breakage or theft of any movables on a property. This would have nothing to do with your own business, but even more worryingly, could be used by a disgruntled consumer to try and justify some arbitrary claim of theirs.

As such, we list below the 5 most important aspects to consider in a Website Terms and Conditions.

The type of website:

It is important to distinguish between whether the site will, for example, simply be for providing information to users, or rather allow users to submit information, content and the like on the website.

Examples of information websites might simply be a website about your company and what it does, whilst sites which allow for users to upload content might be a social media site, directory or the like.

If your website is simply to provide information, you will not be concerned about your terms and conditions recording the kind of content which might be uploaded, the fact that users which upload content need to ensure that they are permitted to upload such content and the like. Social media websites, and other websites which require content which needs to be uploaded require one to consider and record in the terms and conditions what kind of information might be uploaded, any rules pertaining to how users may engage with your site and potentially a community on your site.

Whether you receive payments:

If you receive payments through your website, you should record what payment methods will be acceptable, whether or not you store the card details, and if you do not store the card details, who will be storing the card details on your behalf.

Further to the above, by accepting payments, you should then go on to record in what circumstances, if any, refunds shall be given, as well as any discount coupon policies and the like.

Which law is applicable to your site:

There is a possibility that your users might be accessing your site from all over the world, but you might be headquartered in a single country only. It is often cheaper to record that the law applicable to your website is the one in which you are situated, which will inevitably save you costs should you ever go to litigation. This is on account of the fact that if the litigation is to be held in a foreign country, you would have to appoint foreign lawyers, and potentially incur travel expenses and accommodation.

Dispute Resolution mechanisms:

It is important to consider that if the users ever have a dispute, what will be the process to resolve that dispute. We highly recommend that you simply don’t nominate a dispute to go to a court or arbitration as the first step, but rather record a process in which the parties will attempt to resolve the dispute informally between themselves, and if that dispute is not resolved within a certain period of time the matter is then referred to potential mediation where a mediator will try and find a resolution between the two parties and only thereafter if the dispute is still not resolved one should then go to arbitration or through court proceedings.

Shipping:

To the extent that your company ships goods physically, it is very important to manage expectations in the Website Terms and Conditions and set out the time frame in which goods are to be delivered and in which they might be returned, as well as what consequences would exist should the goods be delivered late, or in a defective state.

Hopefully all of the above will arm you better when setting up your Website Terms and Conditions, and should you want access to our automated Website Terms and Conditions generator, you may do so HERE

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