Conduct of business: Overview, definition and example
What is conduct of business?
Conduct of business refers to the manner in which a company, organization, or party agrees to operate and manage its activities as specified in a contract. This may include obligations related to the way business operations are carried out, such as the maintenance of financial records, adherence to laws and regulations, and the performance of day-to-day activities in accordance with agreed terms.
For example, a partnership agreement might specify that each partner must actively participate in the management of the business or abide by certain operational standards.
Why is conduct of business important?
Conduct of business clauses are important because they set expectations for how business activities should be managed, ensuring that all parties involved comply with the agreed standards and principles. These clauses help maintain the integrity of the business operations, protect the interests of the parties, and reduce the risk of disputes arising from mismanagement or failure to adhere to agreed practices.
Including a clear conduct of business provision in contracts ensures that the parties are aligned on the operational principles and responsibilities, promoting consistency and accountability.
Understanding conduct of business through an example
A franchise agreement might include a conduct of business clause that mandates the franchisee operate the business according to the franchisor’s guidelines, including maintaining specific operational standards and following marketing strategies. This ensures that the franchisee upholds the brand’s reputation and operational consistency.
An example of a conduct of business clause
Here’s how a conduct of business clause might appear in a contract:
“The Franchisee agrees to operate the business in accordance with the franchisor’s established standards, including but not limited to, compliance with all applicable laws and regulations, maintaining the quality of products and services, and following the marketing guidelines set by the Franchisor. The Franchisee shall not engage in any business practices that could damage the reputation of the brand or violate the terms of this Agreement.”
Conclusion
The conduct of business provision is crucial for ensuring that business activities are carried out consistently, ethically, and in compliance with agreed terms. By clearly defining the operational expectations, these clauses help maintain accountability, protect the integrity of business practices, and ensure that all parties fulfill their responsibilities. A well-drafted conduct of business clause fosters a stable and reliable business relationship.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.