Model contracts: ICC gives small businesses a head start with international legal documents
The International Chamber of Commerce (ICC), B2BeeMatch’s trusted international partner, has launched a package of six model legal contracts for entrepreneurs to use when they’re founding a business. Here, we give you a tour of the contracts, why they might be useful to you, and how they came to be. Read on to learn about this excellent set of tools for your business!
Why do entrepreneurs need legal contracts?
Most startup companies and small businesses are working with limited resources in their early stages, which means they’re less likely to invest those resources in paying burdensome legal fees to get their legal paperwork in order. They rarely work with law firms or legal consultants, and often resort to searching for model contracts online—which may be from questionable sources, contain errors, or simply not be tailored to their actual needs.
But businesses that don’t properly handle the legal aspects of their operations can end up facing major problems later on.
“Most entrepreneurs are not even aware that they may need legal documentation. They believe that to have a great idea will suffice to create a start-up, but unfortunately this is not the case,” said Professor H. Ercüment Erdem, Co-Chair of the ICC’s Commercial Law and Practice (CLP) Commission.
That’s where ICC’s package of model contracts comes in.
ICC’s model contracts provide a trustworthy starting point for small businesses.
“We knew that there was a gap in the market for a truly international set of foundational models for new ventures, and we knew that ICC is perfectly placed to prepare international models based on our 25-plus years of creating balanced, international model contracts,” said Emily O’Connor, ICC’s Director of Trade and Investment.
The package of model contracts aims to provide a reliable set of contracts that hew to internationally accepted standards in order to promote legal security and stability for start-up companies, while preventing them from making the basic legal mistakes that often arise due to the problems in other online template contracts.
Professor Erdem chaired the working group, made up of experts from different regions who worked from within different legal cultures and practices. The models were drafted without reference to any particular national law, but rather to internationally accepted standards of international business-to-business practice.
As with all model contracts, users will need to consult legal counsel to ensure that any needed adjustments are made to bring the models into compliance with the requirements of the particular applicable law. That means these templates aren’t intended to be used all by themselves; rather, they’re meant to give start-ups and small businesses a head start on the legal process, and save them time and money, with the understanding that business owners will customize the templates to suit their needs and work with a lawyer to finalize them.
As well, each document is structured to balance the interests of all parties concerned. As a result, they don’t contain clauses that strongly weigh in favour of one party or the other.
What kinds of contracts does the package include?
The ICC model contracts package includes six documents.
1. Model Term Sheet
This model Term Sheet contains key points on which parties have reached a shared vision and agreement to negotiate. It’s typically signed with or just after the confidentiality agreement.
2. Model Shareholders Agreement
This model agreement sets the terms of a binding relationship between entrepreneurs and shareholders, providing rules and obligations to align parties on plans for company growth, investment, governance and the like.
3. Model Directors’ Services/Management Agreement
This model contract lays out the terms and conditions under which the business provides certain services, such as accounting, engineering, consulting or software development. It’s to be signed between the business and its clients.
4. Model Employment Agreement
This model agreement sets out the most common issues regulating the relationship between employees and entrepreneurs, and flags points on which national law regulations are likely to be in place.
5. Model Confidentiality Agreement
This popular existing ICC model contract sets out the agreement between the entrepreneur and the potential partner or investor that the entrepreneur’s unique know-how is commercially valuable and must be protected. It should be signed at the beginning of discussions about a commercial activity in order to establish the ground rules.
6. Checklist on intellectual property assignment and licensing
This checklist provides guidance on issues to consider when deciding how best to assign, license or protect an entrepreneur’s intellectual property (IP) rights, often one of the most valuable assets in a start-up’s portfolio.
How did the ICC decide to create the model contracts package?
For more than 25 years now, the CLP Commission has produced well-balanced, user-friendly and easily accessible model contracts. But this is the first time they’ve launched a full package of six model contracts—a huge undertaking that took nearly two years to complete.
Professor Erdem proposed the idea, and the commission agreed it would be an important set of tools for small businesses. “For a very long time, ICC has had a particular focus on SMEs, and at the CLP Commission we thought that it would be a good idea to help meet the legal needs of start-ups, which are the seeds of those SMEs,” he explained. “A vast majority of the world economy still runs on the power of SMEs, and start-ups are growing every day and taking their place in the economic scene.”
Although the Commission began its work well before the COVID-19 pandemic arose, the pandemic clearly showed the importance of having efficient legal solutions in difficult times. “We would like the entrepreneurs to be focus on their business while we take care of their legal needs,” Professor Erdem said.
“Ideally, the models will be made known to entrepreneurs around the world so that the intended audience—who may never have heard of ICC or never have entered into a legal agreement before—will be able to set up strong and flexible businesses,” said Emily O’Connor. “We want entrepreneurs to spend their time and money innovating and growing their businesses, not stuck in costly and time-consuming legal battles.”
You can find the full contracts package here!