Business Cooperation Agreements in Serbia: Key Clauses That Protect a Company

Two companies agree on cooperation, agree on the price and roughly divide the obligations. While the business is working, the fact that certain issues are not precisely regulated by the contract may not seem particularly important. The problem arises when the delivery is late, the quality of the service does not correspond to the expected, the invoice remains unpaid or one party decides to end the cooperation.

Then it often turns out that the biggest problem is not that the contract does not exist, but that it does not give a clear enough answer to the question of who was obliged to do what and what happens when that obligation is not fulfilled.

That is why the business cooperation agreement should not be viewed only as a formal confirmation of the agreement. Its more important function is to define obligations, distribute business risks and regulate key issues of corporate business.

What is a business cooperation agreement?

The term “business cooperation agreement” is used in practice for very different business relationships. It may include the provision of services, distribution of goods, software development, marketing, consulting, long-term procurement, production or other forms of cooperation.

That is why the name of the contract is not decisive. It is much more important what the contracting parties actually agreed.

According to the rules of obligation law, the contracting parties have broad freedom to arrange their relations according to their own will, but within the limits set by compulsory regulations, public order and good customs.

In practice this means that a good business cooperation agreement between companies should not be taken as a universal template. Its content should follow the specific business and the risks arising from it.

A Precisely Defined Scope of Cooperation Is the First Line of Protection

One ​​of the most common weaknesses of business contracts is an imprecisely defined object of cooperation.

The wording that the company will provide “marketing services” or that the parties will “cooperate on business development” can work as long as the relations are good. If a dispute arises, such wording raises a number of questions.

Which services are covered exactly? What is their scope? When is the job considered done? Who approves the result? How many changes are included in the price?

This is particularly evident in software development.

Let’s imagine that a company hires a developer to create an application. The application is technically completed and the developer issues an invoice. The customer, however, claims that the product is not yet ready for commercial use. If the contract does not define functionalities, development stages, testing methods and acceptance criteria, the question of whether the work is completed at all can become the central issue of the dispute.

That is why it is useful to specify precisely:

• what is delivered;
• in what scope;
• according to which specifications;
• who has what obligation;
• which deadlines apply;
• how to confirm execution;

what constitutes an acceptable result.

The more complex the project, the more important it is that the subject of cooperation does not remain at the level of general wording.

Price Is Not Enough: Define Invoicing and Payment Terms

Companies generally negotiate the price carefully. Sometimes they pay less attention to the question of when exactly the right to collect arises.

And this is exactly where a problem can arise.

One ​​party considers that it has completed the work and issues an invoice. Another claims that the work was not completed or that it was not delivered in the agreed manner.

That is why the contract should regulate not only the price, but also the method of its calculation, invoicing dynamics, payment terms and conditions that must be met in order for the invoice to be issued.

For more complex projects, payment can be linked to clearly defined stages, acceptance of results or another verifiable fact.

In the event of a delay with a monetary obligation, the law foresees the consequences of the delay, including the creditor’s right to default interest under prescribed conditions.

A well-ordered invoicing procedure is therefore not an administrative detail. It can significantly facilitate the later collection of receivables.

A deadline without consequences is often not enough

It is not enough to agree that a certain job must be completed in 30 days. It is important to arrange what happens if this is not done.

In a specific business relationship, it is necessary to assess how important the deadline is and whether its omission justifies termination, an additional deadline for execution, a contractual penalty when it is allowed or some other mechanism.

The law of obligations distinguishes situations in which fulfillment within a certain period is an essential component of the contract from those in which this is not the case. In the case of termination due to non-fulfilment, it is therefore not enough to automatically conclude that any missed deadline immediately leads to the termination of the contract.

It is also important to regulate what happens when one party cannot fulfill its obligation because the other has not provided the necessary data, material, documentation or approval.

If the company must receive a technical specification from the customer to start production, the customer’s delay in delivering the specification should have clearly defined consequences for the deadline manufacturer.

Otherwise, the company may be formally in arrears due to circumstances it did not cause.

Liability for Damage Should Reflect the Actual Business Risk

Liability provisions are often taken over from previous contracts without a serious assessment of what can go wrong with the specific job.

That is not a good solution.

The risk in a minor advisory engagement is not the same as in the development of a key software system, the production of components or a long-term distribution contract.

Therefore, it should be considered for which injuries one party is responsible, what consequences can realistically arise and whether it is appropriate to agree on certain limitations of liability.

At the same time, the contract cannot limit all liability. The Law on Contracts and Torts sets limits, among other things, regarding the pre-contracted exclusion of liability for intent or gross negligence.

Therefore, a clause according to which one party “is not liable for any damage” does not automatically constitute good legal protection just because it is broadly written.

The goal of a good clause is not the maximum transfer of risk to the other party, but its legally viable and commercially rational distribution.

A contractual penalty can be useful, but not for every obligation

A contractual penalty can be an effective instrument for securing certain non-monetary contractual obligations.

For example, it can be relevant in case of late payment performance of a specific job or violation of another clearly defined non-monetary obligation, if the legal requirements are met.

However, there is an important limit: according to the Law on Contracts and Torts, a contractual penalty cannot be contracted for monetary obligations.

That is why late payment of an invoice should not be resolved by simply prescribing a “contractual penalty” for each day of delay. There are other legal mechanisms for monetary obligations, including default interest.

A disproportionately high fine does not necessarily provide better protection either. The law recognizes the possibility of its reduction under certain conditions.

That is why the amount and method of calculating the contractual penalty should be harmonized with the importance of the obligation it provides.

Confidentiality should be defined more concretely than “all information is confidential”

During business cooperation, the partner can get access to price lists, client bases, commercial conditions, technological solutions, business plans, know-how or other documentation that the company wants to protect.

A generic provision that “all information is confidential” is often not enough.

The contract should answer the questions:

• what is considered confidential information;
• who is allowed to access it;
• for what purpose can be used;
• under what conditions it can be available to employees or subcontractors;
• how long the obligation of confidentiality lasts;

what happens to the information and documentation after the termination of cooperation.

When the legal conditions are met, certain information can enjoy protection as a trade secret, but the “confidential” label itself is not the only criterion for such protection.

If personal data is processed within the framework of cooperation, it is necessary to consider separately the obligations arising from data protection regulations.

Intellectual property: specify which rights belong to which party

The issue of intellectual property is particularly important in the development of software, design, photos, video content, databases, marketing materials and other creative or technical work results.

The problem often arises due to a wrong assumption:

• “We paid for the production, so we can automatically do what we want with the result.”

Such a conclusion should not be made without analyzing the specific contract and the type of rights in question.

Instead of the imprecise question “who owns the work”, the contract should clearly determine which property rights, i.e. rights of use, belong to which party and to what extent.

Depending on the specific case, one should consider:

• which rights are transferred or assigned;
• for which ways of use;
• whether there are territorial restrictions;
• how long the right lasts;
• whether the other party reserves certain rights;
• whether the result can further benefit other clients;

what happens to pre-existing materials, code or other elements that were not created within the scope of the specific project.

This is especially important in the IT and creative industries, where intellectual property in the IT sector can represent one of the most valuable things that a company gets from business cooperation.

Exclusivity and Non-Compete Clauses Are Not Automatically Appropriate

A company sometimes has a legitimate business interest that a partner does not represents a direct competitor or not to use the acquired information for a competitive project.

However, such provisions should not be routinely included in every contract.

A prohibition that is too broad may unnecessarily restrict business, make negotiations difficult or open additional legal issues.

Therefore, the duration of the restriction, the territory, the specific products or services and activities to which it applies should be carefully considered. relations.

In certain situations, it is necessary to take into account the rules of competition protection. The valid Law on Protection of Competition governs competition restrictions on the Serbian market, so broad clauses on exclusivity or competitive restrictions cannot be evaluated only from the perspective of the interests of one contracting party.

In other words, the goal is not to write the broadest possible ban, but one that is justified by the specific business relationship and legally sustainable.

How cooperation ends should be arranged before a problem arises

Companies usually pay a lot of attention to how the collaboration begins. They think much less about how they can get out of it.

The contract should clearly regulate whether it is concluded for a fixed or indefinite period, whether there is a possibility of regular termination, which notice period applies and which injuries can constitute grounds for termination.

In particular, a regular termination of a long-term relationship should be distinguished from termination due to non-fulfillment of an obligation.

non-fulfillment, the Law on Contracts and Torts provides different consequences depending on the circumstances, including the importance of the deadline and the possibility of leaving a subsequent deadline for fulfillment in cases where it is necessary.

But the job does not disappear overnight with a termination.

The contract should therefore also answer the questions of what happens to:

• already performed but unpaid services;
• open invoices;
• projects in progress;
• documentation and data;
• confidential information;
• intellectual property rights;

obligations which by their nature should remain in force even after termination cooperation.

Sometimes that part of the contract is the most important when the relationship between companies stops working.

Court or arbitration: decide before a dispute arises

The provision on dispute resolution is often found at the end of the contract and receives the least attention. If a dispute arises, it can become one of its most important clauses.

With domestic business cooperation, it is necessary to consider the jurisdiction of the court. With international contracts, the issues of applicable law, jurisdiction or arbitration and the possibility of enforcing a future decision are additionally raised.

Arbitration may be an appropriate solution for certain more complex or international business relationships, but it is not automatically better than a state court. The choice between arbitration and litigation should be made according to the specific contract, the value of the work and the nature of the business relationship.

The value of the work, the international element, costs, the desired way of resolving the dispute and the realistic possibility of executing the decision should be part of the assessment.

For certain relationships, the contract it can foresee a previous attempt at negotiation or other peaceful resolution of the dispute.

The worst time for the first serious discussion about where the dispute will be resolved is the moment when the dispute has already arisen.

The most common mistakes in business cooperation contracts

1. Using a generic form

A form from the Internet does not know the specific business model, transaction value or risks of the company.

A contract for consulting services should not be the same as a software distribution or development contract.

2. A vaguely defined result

If it is not possible to determine whether the obligation has been fulfilled, it may become disputed whether there is a right to collection or termination.

3. The deadline exists, but it is not clear what missing it means

The date in the contract does not in itself resolve the question of what the other party can do if the deadline is not respected.

4. Invoicing is not related to performance

One ​​party issues an invoice and the other claims that the service is not yet complete. The problem could often be prevented by clear acceptance criteria.

5. The beginning, but not the end of cooperation, is regulated in detail

Without clear rules on cancellation, termination and consequences of termination, getting out of a bad business relationship can become much more complicated.

6. Intellectual property rights and confidentiality are neglected

The issue becomes visible only when one party starts using the information, content, design or software in a way that the other did not expect.

7. It is not verified who signs the contract

Before concluding a significant business contract, it is necessary to check the identity of the contracting party and the authorization of the person acting on its behalf.

There is no universal contract on business cooperation

A good contract is not necessarily a long contract.

The contract between the manufacturer and the distributor must resolve other issues than the contract between the company and IT developers. A marketing agency has different risks than a company that supplies industrial equipment. Long-term cooperation with a supplier requires different mechanisms than a one-time consulting project.

That is why the goal is not for the contract to contain as many clauses as possible.

The goal is to be most precise exactly where the specific business cooperation is the most risky.

A good contract does not eliminate risk, but determines who bears it

No contract cannot guarantee that the business partner will fulfill every obligation, pay every invoice or that a dispute will never arise.

A good contract can, however, determine in advance what each party is obliged to do, when there is a breach of contract, who bears a certain risk and what opportunities exist when the cooperation stops working.

This is precisely the difference between a document that only confirms that business cooperation exists and a contract that really protects the company’s position.

When cooperation carries a significant financial, operational or reputational risk, legal analysis of the contract before signing it can be much simpler than solving the consequences of imprecisely defined obligations.

Jusufović & Partners provides legal support to companies in the drafting, analysis and negotiation of business contracts, as well as in matters of corporate law, collection of claims and resolution of business disputes.

The text is informative and does not represent legal advice for a specific case. Appropriate contractual solutions depend on the nature of the work, the contracting parties and the circumstances of the specific business relationship.