A situation in which dispute arise during business cooperation is certainly not good if you do not have a signed commercial agreement with your business partner. Many companies, in order to maintain friendly relations and avoid formalities, fail to regulate and define such relations through commercial agreements. It is only when disputed situations arise that one realizes the importance of commercial agreements and the precise definition of the rights and obligations of the contracting parties. A comprehensive and precise contract that adequately regulates the business relationship with your business partner saves a lot of resources – both money and time needed to resolve any disputes. Per our experience, the existence of a written commercial agreement with detailed and clearly defined rights and obligations of the contracting parties can shorten the time of resolution of dispute by up to 2 years.
Also, the commercial agreement itself is an unequivocal reminder of what contractual obligations we have and what rights we can claim and in what terms, which avoids subsequent changes to the agreements and conditions reached and avoids misunderstandings with your business partners. As it is extremely important to formulate the terms of future cooperation in a clear and unambiguous way through a suitable contract, according to the nature of the business relationship, in following text familiarize yourself with the essential elements that each contract must contain, as well as other important issues that must be regulated by the commercial agreement.
Different types of contracts
As we mentioned, depending on the nature of the business relationship, the elements of the commercial agreement in Serbia that need to be agreed upon differ. The mandatory elements of all contracts are the subject matter and the price. These two elements are the most important to the contracting parties, and naturally in practice most disputes arise over them. Therefore, the subject of the contract and the price (amount of compensation and method of payment) should be defined as precisely as possible in the commercial agreement. Depending on the business relationship itself and the agreement of the contracting parties, the contract may contain various modifications regarding the payment of the price. In addition to the subject contract and price, it is necessary to pay attention to the specifics of each individual legal transaction and define these specifics in the contract. Keep in mind that although the principle of autonomy of will applies in contractual relations, there are certain limitations that must be taken into account when entering into a contract, which is why it is good to draw up a contract in consultation with your lawyer.
In the following, we will analyze the essential elements of some of the most common contracts in practice.

Sale and purchase agreement
One of the most common contracts that must contain the subject, quantity, price and method of payment is the sale and purchase agreement. In addition to the above, the agreement should also contain provisions related to material defects of the purchased goods, both visible and invisible, and the buyer’s rights and obligations in this regard. It is very important to correctly and accurately define precisely these situations that often occur in practice.
Also, it is necessary to regulate the issue of taking over the goods, passing the risk for material defects, the issue of legal defects and responsibility for damage. Also, if it is a matter of goods that need to be delivered to a certain place, then the contract of sale also has elements of a contract of carriage, which should be taken into account when it comes to the responsibility of the carrier, especially if the transport is carried out on an international route, considering that in that case, various international conventions that our country has ratified can be applied, depending on the type of transport.
Distribution Agreement
The distribution agreement is one of the basic contracts that all companies that produce certain goods and want to expand their sales to more markets, conclude. Therefore, the distribution agreement is the agreement by which the distributor buys goods from the manufacturer for their further sale in a certain territory. During the conclusion of this contract, a large number of questions arise that need to be precisely defined.
Types of distribution
In this regard, the main question that needs to be defined, in addition to the type of goods and price, is the question of the type of distribution, that is, whether it is exclusive or non-exclusive distribution. In the case of exclusive distribution, the distributor is the only one authorized to distribute goods in a certain territory, which is why the fee that is paid to the distributor is higher than in the case of non-exclusive distribution. However, before concluding a contract on exclusive distribution, it is necessary for a lawyer competent for the competition law to analyze the contract in question from the aspect of competition law protection and the practice of the Commission for the Protection of Competition.
Defining the territory
In addition to defining the type of distribution, it is also necessary to define the territorial validity of the contract, that is, for which territory/territories the distribution applies. It is common that both contracting parties are interested in determining the widest possible territory. The manufacturer wants his products to be on the shelves in as many markets as possible in order to generate as much income as possible, and the same is the motive of the distributor. However, from our experience, we suggest that if you are a manufacturer, you should first entrust your distributor with a narrow territory in order to really determine his capabilities and quality of work, and then slowly expand your business to other markets. On the other hand, if you are in the role of a distributor, it is also necessary for you to test the quality and durability of the products you distribute because it may happen that the market is saturated with products of a similar type that you have committed to sell a certain amount of goods during the calendar year.
It should also be borne in mind that when distribution is to be conducted on the territory of several countries, it is not enough to give the distributor the possibility of selling, but also of importing, exporting, or storing the goods in question so that the distributor can distribute the goods in question across the border without hindrance.

Price, targets and duration of the distribution agreement
Certainly, it is important to define the price, that is, the duration of the distribution agreement. However, what should be paid attention to is that in the case of price distribution, i.e. compensation for products, it should be tied to the achievement of specific targets, so that on the one hand the producer gets a motivated distributor, that is, the distributor has the motive to constantly maintain the quality of work. Of course, in order to have real and complete information, it is necessary to define the method of reporting and control of the distributor’s work.
Additionally, what needs to be defined is the duration of the agreement itself, as well as the manner and conditions under which it can be renewed. In this regard, a similar logic should be applied in this case as when defining the territory to which the agreement applies, and that the agreement should be viewed from the perspective of the rules on competition protection.
Protection of trademarks, trade secrets and other intellectual property rights
Nowadays, most companies have realized the importance of branding for their business, so now companies are thinking about branding and protecting their trademarks and other forms of intellectual property. In this respect, as a rule, the goods that the distributor will sell will contain a trademark, which is why he also needs your permission to use the same, that is, authorization to sell goods under the specified mark but under the conditions and in the way you define it.
In addition, as a rule, the distributor is authorized to advertise your products, which is why is of utmost importance that you define in the contract the procedures for the approval of each specific marketing campaign, so that your brand does not find itself in a negative media campaign and suffer negative consequences.
Consequences of contract termination
The manner, procedure and conditions under which the contract may be terminated are an essential elements when defining each contractual relationship, and in the case of a distribution contract, this issue has additional importance. Namely, given that it is, as a rule, a long-term relationship, in the event of the termination of the contractual relationship, it is necessary to define a whole spectrum of questions, from the status of the goods that are with the distributor, returning or continuing to sell the same in some additional period, control of the mentioned process etc. In addition, there is the question of protecting competition, that is, above all, your business secrets, confidentiality, know-how, price policies, business contacts and other issues that need to be resolved immediately, given that as a rule, when the agreement between the contractual parties is terminated, the agreement regarding mentioned is often not possible.
Application of the international law
Distribution can be internal i.e. domestic when it is carried out on the territory or part of the territory of the Republic of Serbia. However, as domestic companies are usually also exporters, mostly to the countries of the European Union and the Western Balkans, it can be said that international distribution is predominant. In this regard, it should be borne that the contract clearly and unambiguously defines the applicable law that applies to the contract, as well as that the burden of fulfilling legal requirements abroad is transferred entirely to the distributor. In addition, what is important in addition to the applicable law is the regulation of the way of resolving disputes with regard to mandatory negotiations before the initiation of arbitration or court proceedings.

Intermediary agreement
A contract whose application in business relations is of great importance and which should clearly and unambiguously regulate the rights and obligations of both the intermediary and the principal. Under this agreement, the intermediary undertakes to try to find and connect with the principal a person who will negotiate with him on the conclusion of a contract, while the principal undertakes to pay the intermediary a certain compensation if such a contract is concluded. In the contract, the intermediary and the client can agree that the intermediary has the right to compensation even if his efforts remain fruitless.
What is very important to keep in mind is that the intermediary has the right to a compensation even if it is not stated in the contract. It acquires the right to compensation at the time of concluding the contract for which he mediated, unless the contracting parties agree otherwise. When concluding this contract, it is extremely important to precisely and clearly define the modality and amount of the compensation, as well as the obligations of the intermediary. In this sense, the intermediary can only try to connect the third party with the client, but he can also undertake to participate in the negotiations and to try to reach the conclusion of a concrete contract between the third party and the client.
Franchising agreement
A franchising agreement is a type of contract that regulates the relationship between the franchisor and the franchisee, in such a way that the franchisee acquires the right to operate under the franchisor’s name, and in return pays him a certain fee. Therefore, the franchisee acquires the right to use all available knowledge, procedures, business methods of the franchisor. What is important to point out is that the parties to the contract remain independent entities that, through franchising, enter into a complex business relationship that contains elements of different types of contracts (sales contract, license contract, etc.). So, simply explained, it is a business system, that is, a relationship in which a successful company transfers the secret of its success (“know-how“) to another.
What is crucial in the subject relationship is the detailed definition of mutual relations, work dynamics and the applicable control mechanism. Namely, as a rule, the franchisee appears to third parties as an entity that is an integral part of the brand and therefore of the franchisor’s corporate structure, which is usually not the case. Because of the above, the business and reputation of the franchisee is automatically reflected on the business and reputation of the franchisor, which is why it is necessary to define adequate mechanisms of intellectual property control and protection in the contract.

Key elements of the contract – clarity and legal protection
Every business relationship contains certain specificities that need to be adapted and shaped in order to ensure legal protection. Apart from the need to precisely define the parties, it is necessary to define the subject and the price in every contract. In addition to the above, the contract may also contain certain specific conditions that are adapted to the nature of the business relationship. Certain types of contracts are not regulated by existing legislation, which is why it is very important to precisely and unambiguously define all terms of cooperation. In this way, the contracting parties greatly reduce the possibility of disputes and interruption of business cooperation. However, even if a dispute does arise, the comprehensive contract will also provide for dispute resolution mechanisms.
Dispute resolution mechanisms
The clause that the contracting parties pay the least attention to when drafting the contract is the provision that refers to the method of resolving disputes. What is common in business relations is that, in order to maintain good business relations, a peaceful resolution of disputes should be attempted. This means that the contracting parties will really enter into negotiations and try to resolve all disagreements peacefully. Only if this is not possible, either the jurisdiction of the specific court is foreseen or arbitration is contracted as a dispute resolution mechanism.
Bearing in mind the workload of the courts, which leads to the ineffectiveness of judicial settlement of disputes, arbitration appears as the main mechanism of dispute settlement. Economically (but not time-wise) a more expensive way of resolving disputes compared to the court, but a mechanism that involves the participation of experts and certain areas, according to the type of business relationship. More business entities are choosing arbitration as a way of resolving disputes, due to its efficiency and the quality of the arbitration decision. Arbitrators are experts in various fields, and lawyers can also be arbitrators, as is the case with the lawyers in our team.
Amendments to the contract
When there is a need to change some element of the contract during its term, it is very important to reflect such changes in writing by concluding the annex. By annex to an contract only one element, i.e. article can be changed, but it is extremely important that the annex be made in a legally valid way, so that the change in question does not conflict with the other provisions of the contract.
Namely, the annex to the contract becomes an integral part of the contract and certain provisions are changed or added with it. These changes, for example, may refer to the change in the scope of work that you have taken on by concluding the contract, and it is necessary to conclude the annex by stating the amendments to the contract, so that there are no disagreements and disputes about the issue in question later. If this change is not reflected in annex, it may be disputed that such an obligation was contracted at all and whether you have the right to claim compensation in this regard. Therefore, it is necessary to update the existing contracts through valid changes.

In the end, we should not forget that the contract represents the agreement of the will of both contracting parties, and that in regard to all provisions, agreement must be reached. In order for your business relationship with your partner to be relieved of legal uncertainty, it is necessary to formalize every business relationship through a contract. By hiring a reliable team, you will be sure that the contract contains all essential elements and legally valid provisions, as well as that you are familiar with the rights and obligations of both contracting parties.
If you want to coordinate your business and cooperation with business partners in an appropriate way, contact us.
This article is for informational purposes only and does not constitute legal advice. If you need additional information regarding the topic in question, please feel free to contact us by email at office@ncrlawyers.com or by phone at +381677049551.