India: The Business Opportunity – an important new handbook

Our colleague Linda Spedding, an international lawyer who is responsible for our Indian contract templates, has published an informative book on Indian business law and regulation.  India: The Business Opportunity is a practical and legal handbook for anyone wanting to invest in the country.

 

Edited by Linda, with chapters contributed by experts on their particular subject and a foreword by India’s foreign minister, a recent review for the UK-India Business Council says it encompasses nearly every existing law and regulation necessary to set up or run a business there, entry strategies and investment regulations, raising finance, taxation, dispute settlement, arbitration, environment, labour, competition, intellectual property, mergers and acquisitions, competition, cyber laws, etc. It also has guidance on corporate governance,  procedures for compliances and risk management. Altogether, it is a comprehensive and unique publication to help any new or existing investor with almost every aspect of business law in the way.

You can read the full review here

The book is available from Wildy’s  in the UK

ContractStore’s contract templates for business in India can be found here

£2.3 million Fine Under Bribery Act. Protect Your Business!

Avoid Bribery Act headaches with a simple download

Bribery Act headaches can be avoided with a simple download
Photo by threephin Creative Commons

 

 

Consultant Sweett Group have been fined £2.25 million plus £95,000 costs at Southwark Crown Court in the first prosecution under Section 7(1) of the Bribery Act.

This is an offence of strict liability – if a business does not have “adequate procedures” designed to prevent persons associated with it from bribing a third party, then it will automatically be guilty of an offence.  And this offence can occur even if the person who offered the bribe was not an employee or not even in the UK – so it could be an overseas agent over whom you have no direct control.  Indeed, in Sweett’s case the offence occurred in the Middle East on some contracts related to the firm.

It is very easy to protect yourself from this risk – you can start by having a proper Code of Conduct or Anti-Corruption Policy in place – and that will cost you a mere £39 (excl. VAT) at ContractStore.

Thousands of small businesses do not have adequate protection – don’t be one of them – set up your Code of Conduct today!

A Guide to the Modern Slavery Act for Your Business

Modern Slavery Act 2015

The question that many supporters of anti-trafficking movements may be asking – Does the new Modern Slavery Act (2015) go far enough to ensure that corporates maintain a transparent supply chain?

The new Modern Slavery Act (2015) will apply to all commercial organisations who carry on business or part of a business in the UK.

Author: Sharon Benning-Prince

Regulations under the Act – expected to be implemented in October 2015 – will require those with turnover above a yet-to-be-determined threshold to produce an annual statement for each financial year, under the so-called ‘Transparency in supply chain provisions‘.

Current reports suggest that a turnover threshold of around £36-40 million is likely.

It looks likely that organisations with turnover over this threshold will have to produce their first statement by the end of the current financial year. The Government has indicated it will publish compliance guidance in the next few months.

The Act introduces two main offences:

  • servitude or forced labour
  • arranging or facilitating the travel of another person with a view that a person is being exploited

Section 54: Companies Must Publish a A Statement

  • Section 54 of the Act will require every large business to publish an annual statement setting out the steps the business has taken during the year to ensure that slavery and human trafficking are not taking place in the business itself, or in its supply chain.
  • The statement must be published on the business’s website.
  • The obligation to publish a statement applies to businesses which carry on any part of their business in the UK and which “supply goods or services” (essentially, all trading companies and partnerships).
  • The statement must be approved by the board of directors and signed by a director (in the case of companies), approved by the LLP members and signed by a designated member (in the case of LLPs), and signed by a general partner (in the case of limited partnerships).
  • Overseas conduct will be included, and will be deemed as if the offence had taken place in the UK.

Preparing the Statement
If a company is caught within threshold, the basic requirement is to produce a statement confirming:

  • the steps taken to ensure that slavery and human trafficking are not taking place in your business, or in any supply chain

or

  • declare that you have taken no steps to confirm the existence of slavery or trafficking. This approach may place a company’s ethical position into question and affect its reputation, so it is expected many companies would prefer not to take this option.

The Act does not specify the exact steps that a business must take in relation to supply chain transparency, and there is no prescribed form of transparency statement. However, the Act suggests that the statement “may” include the following:

  • brief description of your organisation’s business model and supply chain relationships
  • your organisation’s policies relating to modern slavery including due diligence processes and the training available/provided for those in supply change management and the rest of the organisation
  • the parts of the business and supply chain most at risk in the organisation and how the organisation evaluates and manages those risks
  • relevant key performance indicators which would allow a reader to assess the effectiveness of the activity described in the statement.

Publication
The homepage of your website must contain:

  1. a prominent link to the statement, which must be approved by the board and signed by a director
  2. homepages of both the parent company and any subsidiary websites
  3. if the company does not have a website it must provide a copy of the statement within 30 days to anyone who requests it

Application / Jurisdiction

  • a company/partnership over a certain size
  • that supplies goods or services
  • and carries on a business or part of a business in the UK

Implications
The Act itself imposes no legally binding requirements to conduct due diligence on supply chains. And there is some flexibility regarding the content of the statement, as companies may find it difficult to compile all the relevant information. The Government has framed Section 54 in such a way as to leave it open to businesses themselves to determine how best to comply with its requirements, and how far they should go in identifying where any risks may lie – and how to tackle them.

The Government has also made it clear that it expects each business to take an appropriate and proportionate approach, based on the nature of its business and the industry sector.

What should you be doing now?
Companies should assess whether they are caught by these requirements. For some this will be straightforward, while others will need to decide on an entity-by-entity basis once the turnover threshold is published. Even if your turnover is lower than the threshold, it may be good for a company reputation to follow some of the guidance and recommended procedures to build customer confidence.

If your company is likely to be affected then you could:

  • start assessing current levels of information on your supply chains. The company will need to start engaging with its direct and indirect suppliers, and set up due diligence systems to obtain reliable information
  • draft and implement a policy on slavery and trafficking
  • assess the need for training within your organisation, and your supply chains, on human rights compliance
  • incorporate anti-slavery and trafficking obligations (and related policies) into procurement agreements, and require similar obligations to be incorporated into any sub-contracting arrangements
  • review your supplier due diligence processes to incorporate procedures that identify modern slavery and trafficking risks.

Will it work?
At this time, it seems that any process that seeks to address trafficking and forced labour issues are to be welcomed. However there are no criminal or financial penalties for non-compliance, and that is an area that could be reconsidered. In order to ensure that companies comply with the Act and comply properly and ethically, there should be some element of financial penalty.

Notwithstanding the lack of penalty, any company that is deemed not to be adhering to the Act may suffer detriment from a reputation perspective, and this in itself may be enough of an incentive for both companies that fall within the threshold, and those that don’t, to comply with Section 54 properly.

Further Reading

What You Need to Know about Distributor & Reseller Agreements

 If you want to increase sales in a new area whether in your own country or overseas, there are two principal methods, apart from setting up a branch of your business there.  One is to appoint an agent who will promote your goods and find buyers for you.  The other is to appoint a distributor or reseller who will buy your products and then resell them in his territory.

 Once you have decided on the territory that you want to cover, you will need to find a suitable candidate to resell your products.  This is not an easy task and it certainly needs to be undertaken with care, and plenty of due diligence. There is advice on how to go about this in Exporting Made Easy , a book that I have co-written and it is available online at www.exporting-made-easy.com

Once you have selected your distributor, be sure to have a written agreement with him setting out the terms of the deal which allows you to bring the arrangement to an end if things do not work out satisfactorily. You should also get local legal advice before signing an agreement because there could be local laws which you need to take into account – for example, it might be necessary for a distributor to be owned by nationals of the country.

 Set out below are some of the main issues that you need to consider and to cover in your distributorship agreement.

Specify the products and the territory

if you have more than one product line, it may be sensible to restrict the agreement to one or two lines initially to see how things go. You can always add more products later. As for the territory, this needs to be clearly defined. 

Exclusive or Non-exclusive

Are you going to appoint the distributor on an exclusive or non-exclusive basis – i.e.will he be the only person in that territory who is entitled to sell your products. Even if you agree to an exclusive arrangement, you might want to reserve some existing customers to deal with direct, in which case cover this in the agreement.

Duration

What is the initial term of the agreement?   Make it long enough to give the distributor time to get established and into the market with your products, but no longer. It can then be renewable yearly if things work out.

Orders, Prices and Payment

The agreement should set out the arrangements for ordering products as well as prices and payment terms.   Depending on the nature of your business, it can be useful to have forward estimates of orders so that you will have sufficient stock to meet the distributor’s requirements.

It is usual to specify that each order which is accepted constitutes a separate contract between the two parties and that the sales are made on your standard terms and conditions.  You might want to attach a copy of these to the agreement.

There will probably be a schedule setting out the prices of the various products and this could include some trade discounts depending on volume etc.

As for payment terms, you do not want any more exposure than is necessary. Payment prior to shipment is one possibility and another is to have the distributor set up a confirmed irrevocable letter of credit.

It is not normally lawful to fix the resale prices that your distributor will charge so there is always a risk that he will offer your products at a lower price than another distributor.

  Sales Targets. 

You should certainly include some agreed sales targets in the agreement because this allows you to monitor the distributor’s performance. Coupled with the sales targets should be a provision that not only allows you to revise the targets but also entitles you to bring the contract to an end if, for example, minimum targets are not achieved for two or three consecutive quarters.

 General Obligations

It is sensible to identify what marketing material and technical data you will provide and if training of the distributor’s sales staff is needed.  You may also want to have terms that require the distributor to have a marketing budget, to report on sales on a regular basis etc.

 Intellectual property

Make sure that you protect your copyright, patents and trademarks. Your distributor should only be allowed to use them while the agreement remains in place and it is sensible to have a clause which requires him to notify you and to act to protect your interests if, for example, counterfeit goods appear in the market in his territory.

Termination

Always include a clause that allows you to bring the contract to an end if the distributor fails to meet his targets or commits some other breach of contract or becomes insolvent.   Terminating an agreement of this type in some countries might  lead to substantial compensation claims so you need to take legal advice before finalising the wording.

Non-competition and Confidentiality

You may want a clause that prevents the distributor from selling any products that compete with your own both during the agreement and, perhaps, for a period after it has come to an end. In addition, you will probably want to be sure that the terms of the agreement are kept confidential.

Dispute resolution and Governing Law

While you might want English law to apply and any disputes to be dealt with in the English courts, if the distributor is based overseas and has no assets in this country, getting a judgement and then enforcing it against him might prove rather difficult.  An international arbitration clause could well be preferable and we have some free information on our website concerning this topic.

Our template for appointing a distributor can be found here http://www.contractstore.com/A117-distributorship-agreement

What You Need To Know about Manufacturing Contracts

If you have invented a product or you own the patents to a product and you are looking for a manufacturer, you will need a formal contract to protect you. But what should be in it?

Many businesses are looking overseas to China and other countries to lower their manufacturing costs and access specialist skills.

So if you are looking for a manufacturer, at home or abroad, here are some tips on what to include in your contract, often taking the form of a Licence to Manufacture. This can be more like a partnership between an inventor and manufacturer, or a simple ‘you make it, but I own it’ agreement.

Manufacturing contracts can vary quite a lot depending on the type of product, location of the factory etc., but there are a number of consideration that are common to most of these contracts.

Clearly, before you get to the stage of agreeing detailed terms, you will need to find the right company for your product and do some due diligence to satisfy yourself that the company can not only produce goods of an acceptable quality but also they can deliver the quantities you need within the right time frame.

You will also want to consider whether your manufacturer is simply going to make the goods and ship them to you, or whether he has the right to sell them as well – and if so, where?

The Licence

First of all, the main purpose of the contract will be set out. This will usually provide for the inventor or patent owner to give a licence to the manufacturer, the licensee, to manufacture the product.

The licence could be exclusive – i.e. the licensee is the only company with manufacturing rights – or non-exclusive.

Sometimes it may be exclusive but within a territory – e.g. the only factory authorised to produce the goods in China.

If your licensee wants the right to subcontract the work to others, you need to be careful, as the more the direct relationship is diluted, the more the risk of patent infringement.  However, if some part needs to be sourced from a specialist, a sublicence can make sense.  Just make sure the contract is clear that subcontracting does not relieve the licensee from his contractual obligations to you.

Duration

An arrangement such as this will generally need to be reasonably long-term, especially if there is a development phase before the product is ready for the market, as this could involve substantial time and expense on the part of the licensee.

So a term of 5 to 10 years could be appropriate, or even longer.

Development Support

Development of a new product is rarely a straightforward matter, so your input into the development is likely to be needed.  You may want a clause that limits the amount of free time that you give your licensee. Sometimes an inventor will get a consultancy fee for this work.

Pricing and Royalties

If the product has already been developed, and all you are looking for is a factory to produce the goods, then the contract can be straightforward and provide for payment against an agreed ex-works price list.

If, however, the manufacturer is going to bring your product up to an acceptable manufacturing standard at his expense and then have the right to sell the goods, you could be better off having a royalty arrangement.

This could include an up-front payment on signing the agreement, and then for the duration of the agreement, a royalty calculated as a percentage of the sales priceThis is likely to be the ex-works or wholesale price.

You might want to have the contract provide for a minimum royalty, so as to reduce the risk that the manufacturer reduces quantities in favour of some other product.

Record-Keeping and Payment

If you are buying the goods for resale, you will normally want to pay on delivery – so as to avoid the risk of paying for goods before you know they meet the specification.

If the manufacturing is overseas, the seller will want payment on shipment, so it can be useful to have your own agent in the country who can check the goods before shipment.  Insurance of goods in transit also needs to be covered, either by the supplier or the buyer.

When there are royalty payments and the manufacturer is also selling some or all of the products, it is usual to have royalties accounted for on a quarterly basis, with interest payable on late payment amounts.

And, whatever the payment terms, be sure to have a clause in the contract that gives you the right to access the Licensee’s accounts – so that you or your local agent can verify the production and sales figures – and, sometimes, the manufacturing costs as well.

Territory

In today’s global market, you need to agree in which countries the manufacturer can sell the products and whether he will have exclusive or non-exclusive access to those territories.

Intellectual Property Rights

It is essential to spell out who owns the designs and other IP rights in the product.  This will normally be the licensor, while the manufacturer as licensee has only the production rights.

As licensor you may be well advised to register your patents in the country of manufacture and anywhere else where the goods may be sold  And your licensee may be required to notify and support you if any third party is found to infringe your rights by producing or selling counterfeit goods.

Improvements

There is always a possibility that either party may want to make changes or improvements to the design and it is sensible to cover this in your contract:

1. by only allowing modifications that you have agreed to

2. by dealing with the ownership rights. A shared ownership is sometimes the right approach if your manufacturer has improved the product; this could also impact on the royalty arrangements.

Confidentiality

Clearly, this is an agreement where confidentiality is quite important and an appropriate clause should be included.

Termination

You need the right to bring the contract to an end if your licensee breaches the agreement or becomes insolvent.

You might also want to terminate if he fails to produce or sell enough products.

And the clause should set out what happens to goods that have already been manufactured when the contract comes to an end.  Do you get them or can he sell them?  A run-off period may be sensible.

Law & Disputes

If the licensor and manufacturer are in different countries, you need to get advice on how to get disputes resolved and which country’s law governs the contract.  A two or three stage dispute resolution process is often recommended– direct negotiation, then mediation (if agreed) and finally the courts or arbitration.

ContractStore has a number of contract templates for manufacturing contracts which you can find here: http://www.contractstore.com/goods-manufacture-supply

They include:

Parent Company Guarantees

Parent Company Guarantee templateIt has become common practice for a client in the UK construction industry to require its contractor to provide security. Performance Bonds and Parent Company Guarantees are two forms of contract to handle this requirement.

Especially in times of uncertainty, anyone awarding a valuable contract will need to think about the financial and technical capacity of the contractor, not least in the building industry where insolvency is all too common.

Partly in consequence of this risk, it has become common practice for a client in the UK construction industry to require its contractor to provide security – in the form of a performance bond and, especially where the company entering into the contract has limited assets but is part of a larger group, a guarantee from its parent company.

These requirements are usually included as a term in the contract between the client and the contractor and it is sometimes a condition of receiving payment under the contract that the performance bond and parent company guarantee are in place.

Who Will Provide the Guarantee?

It is usual for the ultimate holding company of the contractor to be asked for the guarantee, but this is not always the case.

For example, if there is an intermediate company within a group which has sufficient assets, the client might be willing to accept such a company. Moreover, sometimes this is to the advantage of the beneficiary, i.e. the client.

For example, if a contracting company incorporated in England is ultimately owned by a US corporation, the UK client needs to consider whether it may have difficulties in enforcing the guarantee if for any reason the parent company does not pay when called upon to do so. The chances are that legal proceedings in the United States could be necessary. So, if in the group that owns the English contracting company, there is an English “parent” that has adequate assets, the guarantee might best be obtained from that English parent.

Formation of a Contract

A parent company guarantee creates a contract between the client and the guarantor. It will specify the guarantor’s duties and usually have an end date – e.g. the date of completion of the project, after which it ceases to have any effect. The guarantor will specify when it comes into effect and what are the guarantor’s obligations – e.g. to take over the project from its subsidiary if the subsidiary becomes insolvent or ceases to perform its contract.

Often there is a wide indemnity clause under which the guarantor indemnifies the client against all losses it suffers as a result of the subsidiary’s default. If you represent a parent company being asked to provide a guarantee, you should try to ensure that your liability is no greater than that of your subsidiary under its contract with the client. In other words, if the contractor’s liability is limited to a fixed amount, this should apply to the guarantee. And if the contractor is owed money by the client, it can be useful for the guarantee to give the guarantor the right to withhold an equivalent amount from what it has to pay the client under its guarantee. Without appropriate wording, the guarantor can find itself liable for more than its subsidiary.

When is a Guarantee Not a Guarantee?

Parent company guarantees do, of course, come with the risk that if the contractor company is in trouble, its parent may be in trouble as well, so a call on the guarantor can turn out to be worth less than it seemed. Which only goes to underline the fact that due diligence is needed before any major contract is signed.

For a balanced form of PCG: http://www.contractstore.com/B149-parent-company-guarantee

For a performance bond template: http://www.contractstore.com/B146-bond

Bribery Act UK: Is Your Business Prepared?

New UK legislation coming into force on July 1st 2011, requires companies to have “adequate procedures” to prevent corruption – i.e. a Code of Conduct – in order to avoid the risk of an offence under the new law.

ContractStore and GovRisk (The International Governance & Risk Institute) have teamed up to produce a template Code of Conduct to aid SMEs.

About the New Laws

On July 1st 2011, the Bribery Act comes into force in the UK. This new legislation is broad-ranging in its language and it covers corruption occurring abroad as well as at home. It is essential for companies to get a policy in place to show they are complying and avoid prosecution.

But many businesses have been slow to adopt appropriate policies and procedures, as they have yet to fully appreciate the seriousness of the Act’s implications.

New Offences

Under the Bribery Act 2011 there are four new offences:

  • Bribery of another person
  • Accepting a bribe
  • Bribing a foreign official
  • Failing to prevent bribery

Bribery Act: Key Facts

  • Companies as well as individuals can be prosecuted
  • The only defence to the new offence of failing to prevent bribery is to show you have “adequate procedures” in place to prevent such corruption
  • A company can be prosecuted for bribery in the UK and overseas, and for bribery by employees as well as third parties appointed by your organisation

Founder of ContractStore.com, Giles Dixon says:

“Every business should have a Code of Conduct in place which is compliant with the Act and the Guidance issued by the UK Government. Training of personnel is another important aspect of the compliance procedure.

“We are in the business of helping companies to keep legal costs down and we are concerned that this far-reaching legislation could expose many to prosecution. To support the UK SMEs that are our main customer base we’ve teamed up with GovRisk training providers to make available online a ready-to-use template Code of Conduct.

“Like all our documents, it’s clearly written in plain English, editable in Word and comes with explanatory notes.

“ContractStore’s model Code can be adapted to cater for particular circumstances, as the corruption risks for a company vary depending on the size and nature of the business and the areas of the world in which they operate, as well as the extent of your relationships with others – joint venture partners, agents, Government clients etc.

“We want to make it as easy as possible for UK businesses to get this issue sorted out quickly and easily.”

Prepared for ContractStore.com in conjunction with the GovRisk, this Code of Conduct is available for a limited period at a special introductory price of Ł27 (excludingVAT).

It can be downloaded online directly from www.contractstore.com. Specific guidance and tailoring services are also available.

The International Governance and Risk Institute (GovRisk) are holding an afternoon seminar and drinks reception on the “UK Bribery Act and its Impact on Your Business” on July 14th in London’s Canary Wharf from 4pm. The seminar will feature some of best experts in the field of Anti-Corruption and a drinks reception will follow. Registration is on a first come, first served basis as places are limited.