4 Important Reasons Contract Standards Fail and 10 Practical Solutions
Contracts – for example Master Services Agreements, Customer Agreement or Terms & Conditions – are the backbone of virtually every business transaction. The best way to have the signing process run smoothly is by using contract templates.
For example, for all these professionals, contracts are an essential part of their work:
- a sales professional sealing a new deal;
- an entrepreneur looking for funding;
- a procurement specialist involved in the negotiation of vendor contracts; or
- a legal professional tasked with protecting company interests
By clearly outlining terms, responsibilities, and expectations, great contracts build trust, mitigate risks and keep business relationships running smoothly.
However, contracts can also become a source of complexity. Many companies desire that a new product, service, or partnership requires its own unique contract language. This can quickly turn into an administrative and legal bottleneck if not managed properly. This is why smart organizations turn to contract templates. When thoughtfully designed and regularly updated, these templates streamline contract creation and negotiation, saving both time and resources.
Contract templates are only as good as the process behind them. If they’re too long, packed with dense legal jargon, or buried in a repository that nobody can find, even the most well-written templates won’t make a difference. That’s where this article series comes in. It will help you craft contract templates that really accelerate deals while protecting your organization’s interests. We will first start with the ‘Most Important Reasons Contract Standards Fail and Practical Solutions’.
What We Will Cover
In this introductory article, we will explore the value of using contract templates and highlight key pitfalls that can undermine them. We will then examine the potential consequences of poorly managed templates and, finally, demonstrate the benefits your business can gain by developing modern, easy-to-use contract templates.
Here’s a quick overview of what you can expect:
- Why We Need (Better) Contract Templates
We’ll discuss why organizations of all sizes and industries should focus on improving their templates. Examples will range from standard Non-Disclosure Agreements (NDAs) to specialized industry contracts like AI software licensing or wind turbine supply agreements. - Common Issues with Contract Templates
We’ll identify the biggest challenges that derail template usage, from outdated clauses to complicated language that sales teams struggle to understand. - Consequences of Contract Template Issues
We’ll look at how these problems can delay deals, increase risk, and strain business relationships. - Results of Having State-of-the-Art Templates
We’ll highlight the positive impact of streamlined, clearly written, and easily accessible templates—such as faster negotiations and reduced legal bottlenecks. - Real Life Examples of Contract Optimization
- How to Improve Your Contract Standards & Templates
We’ll draw on two decades of professional insights into how companies achieve the best outcomes and keep improving their contracts over time.
This article sets the stage. The upcoming series of articles, called “10 Tips You Need to Know to Improve Your Contract Templates,” will dive deeper into each tip – see below the full list of tips. This will offer you practical steps to help you develop contract templates that truly serve your business. Before we get there, let’s start by laying out why a solid set of templates is indispensable—and where most organizations go wrong.
Why We Need (Better) Contract Templates
Organizations often juggle a wide range of agreements, from the simplest Non-Disclosure Agreement (NDA) to the most complexTerms & Conditions or Master Services Agreement (MSA). Companies, for instance, often deal with Software as a Service (SaaS) contracts (Salesforce, ServiceNow, HubSpot). Each contract type can be drastically different, but they all share one objective: to clearly outline obligations, manage expectations and mitigate risk.
Balancing Clarity and Complexity
One of the main reasons companies need better contract templates is the tension between clarity and complexity. A good contract should be thorough enough to protect the business while still being concise and straightforward. For example, a wind turbine manufacturer might need clauses that cover equipment specifications, maintenance, installation timelines, and environmental compliance. Adding too many layers of complex legal text, however, can slow negotiations or make the contract inaccessible for non-legal stakeholders.
By creating well-structured, user-friendly templates, you ensure that each new contract iteration doesn’t require a complete rewrite. Instead, your teams can modify or append specific clauses to tailor the template to each deal, project, or relationship. This level of uniformity can dramatically cut down on drafting time, reduce back-and-forth with legal counsel, and speed up the signature process.
Enhancing Workflows
Well-designed templates also improve workflows by establishing a clear starting point. If you are repeatedly negotiating Master Services Agreements or Terms & Conditions (T&Cs), for instance, you want your sales or procurement colleagues to know exactly which clauses are standard and which ones might need special approval. This clarity keeps deals moving quickly and prevents confusion.
In a tech environment, especially one dealing with SaaS or AI solutions, the speed of execution can be a competitive advantage. Having strong, approved templates means your product or service can get to market faster, since you won’t have to battle the same legal issues repeatedly.
Keeping Pace with Evolving Business Needs
Business models evolve rapidly. Just think about how quickly AI technology is reshaping industries or how sustainability concerns are driving new contract requirements for wind turbine manufacturers. If your contracts don’t keep up with these changes, you could end up with agreements that fail to address emerging risks or market demands. For example, an AI contract might need robust clauses related to data privacy, algorithmic bias, or intellectual property ownership.
Templates need regular updates to accommodate new legal requirements, shifts in company strategy, and lessons learned from recent deals. Far too often, companies let their templates gather dust, failing to reflect current regulations, technology changes, or internal processes. This is why dedicating resources to regularly refining and updating templates isn’t a luxury—it’s a necessity for any forward-thinking enterprise.
Common Issues with Contract Templates
Despite their obvious advantages, contract templates can become more of a hindrance than a help if they aren’t properly managed. Below are four issues that commonly arise.
1. Complexity
Overly long, technical, or legalistic language can deter people from using templates. A contract for a wind turbine supply project, for example, might run dozens of pages, filled with specialized engineering terms. If the language is too arcane, the sales or operations team might avoid the template altogether, reverting to manual drafting or older versions. This reduces consistency and can create legal blind spots.
2. Accessibility
Just having great templates on file doesn’t help anyone if they can’t be found. Many organizations store templates in multiple folders or on different file-sharing platforms without clear naming conventions. This leads to confusion, version control issues, and the risk of using outdated documents.
3. Limited Resources
Template management can fall by the wayside when legal teams are stretched thin. With pressing demands like regulatory compliance, litigation, or high-stakes contract negotiations, dedicating time to reviewing and updating templates can seem like a low priority. As a result, templates quickly become outdated or overlooked.
4. Excessive Legal Review
One main benefit of templates is the reduction of legal review times—yet this only works if the templates are well-structured and widely trusted. If internal stakeholders distrust a template’s accuracy, they’ll still funnel contracts to Legal for a deep dive. When every single deal, even small ones, becomes a bottleneck, it defeats the entire purpose of having a standardized approach.
Consequences of Contract Template Issues
Neglecting contract templates or managing them poorly can trigger a cascade of problems:
Delays in Contract Creation, Negotiation and Signing
If a template is unwieldy or unclear, it can’t speed up much of anything. Negotiations might stall as both parties parse through unnecessary terms or loop in legal counsel for clarifications. In fast-paced markets like AI or SaaS solutions, a few weeks’ delay can mean lost opportunities.
Increased Risk Exposure
Templates are supposed to protect the company from legal pitfalls, but if they’re outdated or inconsistent, they can introduce more risk. For instance, imagine you’re finalizing a wind turbine maintenance contract and your template lacks a recent clause covering environmental regulations. You could face unforeseen liabilities or compliance issues if something goes wrong.
Higher Workloads
Legal, procurement, and sales teams spend far more time dealing with avoidable contract snags when templates aren’t user-friendly. Instead of focusing on strategic deals or high-risk situations, experienced counsel and managers waste hours revising the same clauses because the existing template is missing critical updates.
Strained Business Relationships
Contracts serve as touchpoints of trust and efficiency. Clients or partners who encounter errors, inconsistencies, or long delays may question your professionalism. This can harm relationships, with ripple effects on future collaborations and your reputation in the market.
Results of Having State-of-the-Art Templates
When companies invest in robust, well-maintained contract templates, the benefits are felt across every stage of the deal cycle. Below are nine advantages you can expect when you get it right:
1. Shorter Contract Negotiation Times
With standard terms already approved, you avoid renegotiating common clauses for each new agreement. Whether you’re drawing up a SaaS user agreement, an AI licensing contract, or an extensive MSA for wind turbine installations, both sides can focus on the unique aspects of the deal instead of wading through boilerplate clauses.
2. Increased Efficiency and Simplified Contract Handling
Well-organized templates reduce repetitive drafting. This frees up your legal, sales, and procurement teams to concentrate on more strategic tasks—like market expansion, major partnerships, or regulatory shifts that impact your industry. In tech, efficiency gains can translate directly into faster product launches or new feature rollouts.
3. Reduced Workload
By cutting down on the number of contracts that need an in-depth legal review, you open up bandwidth for high-value activities. This not only alleviates bottlenecks, it also makes the best use of specialized legal expertise. Instead of reviewing basic NDAs or T&Cs, your legal team can focus on, say, negotiating a complex AI data-sharing agreement or advising on regulations for renewable energy installations.
4. Enhanced Consistency and Contract Quality
A consistent, predictable approach builds trust with stakeholders. For instance, if you’re partnering with multiple wind farms, each contract will look and feel similar, providing confidence to partners that you know how to handle regulatory requirements, risk allocations, and maintenance responsibilities.
5. Risk Mitigation
Well-crafted templates function as a built-in risk management tool. By integrating updated clauses on liability, data protection, intellectual property, and compliance, you create a safety net that reduces the likelihood of legal disputes. This is particularly crucial in cutting-edge fields like AI, where regulations are still evolving and clarity is paramount.
6. Decreased Legal Costs & Improved Cost Efficiency
When legal teams spend less time reviewing common contracts, your organization saves money. Those resources can then be reallocated to essential areas—like exploring new tech partnerships or investing in research and development for AI or wind turbine efficiency upgrades.
7. Stronger Business Relationships
A smooth, transparent contracting process fosters goodwill. Clients, suppliers, and partners appreciate clarity and efficiency, and they’re more likely to remain loyal or expand the relationship. In specialized industries, like renewable energy, a reputation for easy, fair contracts can be a powerful competitive edge.
8. Optimized Resources
When contract workflows are streamlined, companies can allocate financial and human capital more effectively. This may mean investing in better contract management software, training employees on best practices, or diverting saved resources into innovation initiatives—such as new AI features or advanced turbine technology.
9. Empowered Commercial Teams
Finally, modern contract templates give sales and procurement teams greater autonomy. They can handle routine deals themselves, thanks to pre-approved language. This sense of empowerment boosts morale and allows these teams to focus on building relationships rather than waiting on legal reviews.
Examples: Experienced Results of Contract Optimization
Drawing on two decades of experience in contract optimization, I’ve seen firsthand how transformative good templates can be.
Technology Company
In one instance, a tech company changed its entire suite of legal documents—ranging from SaaS agreements to T&Cs and NDAs—to align them with new data protection laws. By involving key stakeholders (Legal, Sales, and IT Security) from the start, they created a user-friendly, legally robust set of templates. The outcome was a dramatic reduction in contract negotiation times and fewer escalations to senior management.
Renewable Energy
In another example, a renewable energy firm specializing in wind turbine installation tackled their inconsistent and overly complex MSAs. Their previous templates had caused frequent renegotiations and confusion over maintenance responsibilities. After revamping the templates to remove outdated clauses and clarify roles, the average contract closing time dropped by nearly 40%. Clients noted the improved clarity, leading to stronger partnerships and a significant boost in the firm’s industry reputation.
Bringing It All Together
These examples underscore the value of a collaborative approach to contract optimization. It’s not just a legal project; it’s an organizational endeavor that benefits every department involved in contract-related workflows. Regular feedback loops, where Sales or Procurement teams highlight real-world issues they face during negotiations, can pinpoint areas that need refinement. Legal teams, in turn, can incorporate new regulatory updates or risk mitigation strategies. This cycle of continuous improvement keeps your templates relevant, user-friendly, and aligned with evolving business goals.
How to Avoid These Issues and Reach Better Results?
But how can you avoid these issues and reach the advantages & results we discussed above? Stay tuned for our upcoming posts and articles, where we will dive deeper into practical tactics and step-by-step guidance on developing contract templates that truly work for your business.
Best Practices to Roll Out New Contract Templates
If you’re ready to transform your contracts from a necessary evil into a strategic asset, we’re here to help. Whether your primary focus is tech, AI, or renewable energy, every organization can benefit from more streamlined, flexible, and secure contracts. For further guidance on improving contract templates, managing negotiations, and optimizing related processes, reach out via lowa@amstlegal.com or book an appointment with Robby Reggers here.
Follow Robby Reggers and AMST Legal on LinkedIn to read the updates and long form versions of the following posts & articles on these essential topics:
Ultimate Beneficial Ownership (UBO) Explained – What is it and How to Create a Process That Works
The concept of the Ultimate Beneficial Owner (UBO) has moved from a niche concern to a central element of contracts, compliance and due diligence. Whether you’re advising clients on onboarding new customers, hiring a new law firm, negotiating international contracts, or setting up a new corporate entity, understanding UBO requirements is no longer optional – it’s essential.
Failing to understand and address UBO requirements not only leads to significant financial penalties, reputational damage and even legal action. I have also seen that it can slow down many commercial, financial and legal processes. This article ‘Ultimate Beneficial Ownership (UBO) Explained – What is it and How to Create a Process That Works’ provides practical strategies for navigating UBO disclosure – both when requesting information from others and when providing it yourself.
What We Will Cover
This guide addresses five critical aspects of UBO management that business professionals need to understand:
- UBO fundamentals – What is a UBO and why does it matter in modern business relationships
- Industry and contract-specific requirements – Which industries need to think about UBO requests and what kind of contracts are involved?
- Dual-sided strategies – Effective approaches for both requesting and providing UBO information
- Implementation framework – A five-point system for establishing efficient UBO processes
- Competitive advantages – How excellence in UBO management creates business opportunities
Understanding UBOs – What Is It Exactly and Why is it Important?
An Ultimate Beneficial Owner is the natural person who ultimately owns or controls a legal entity, even if their name doesn’t appear directly on ownership documents. Typically, this includes individuals who own more than 25% of shares or voting rights, though this threshold may be as low as 10% in some contexts. It also encompasses those who exercise control through other means, such as appointment rights or veto powers. When ownership is widely distributed with no individual meeting these criteria, a senior managing official may be designated as a “pseudo-UBO” for compliance purposes.
The prevalence of UBO requirements in business relationships stems from what can be described as a compliance chain. Initially confined to financial institutions under anti-money laundering regulations, these requirements now cascade through various industries. For example, a payment processor might require UBO information from an e-commerce company, which in turn requests this information from its suppliers, who then include UBO disclosure requirements in their contracts with manufacturers. This chain reaction explains why UBO clauses increasingly appear in contracts across sectors that previously had minimal regulatory oversight.
Legal Framework: Global, EU, and Dutch Requirements
Before we go into the key industries & contracts involved, let us shortly mention the legal framework where these burdensome UBO’s originate from. Many countries and global organizations have implemented a framework to know which measures should be implemented to combat money laundering and terrorist financing. As countries have diverse legal, administrative and operational frameworks and different financial systems, measures to counter these threats differ greatly per country and region.
Global UBO Standards
Globally, most countries have developed UBO standards in response to international initiatives against money laundering and financial crime. While approaches vary by jurisdiction, several organizations, initiatives and common principles have emerged:
- FATF Recommendations (see link): Recommendations (24 and 25) that require countries to ensure transparency regarding beneficial ownership of legal entities
- Varying Implementation: Globally, most countries have established beneficial ownership registries with different thresholds and accessibility levels.
- Accelerated Transparency: The Panama Papers and Paradise Papers revelations exposed how anonymous structures facilitate financial crimes
- Information Sharing: The OECD’s Common Reporting Standard (see link) enables automatic exchange of financial account information between tax authorities
- Compliance Complexity: Multinational companies face a patchwork of requirements necessitating country-specific approaches
European Union Regulatory Framework
The EU has established one of the world’s most comprehensive UBO disclosure regimes, especially under the Anti-Money Laundering Directives (AMLD):
- AMLD: The 4th AMLD required central UBO registries, the 5th mandated public access, and the 6th strengthened enforcement.
- Ownership Definition: A beneficial owner is any natural person who owns or controls at least 25% of shares/voting rights or exercises control via other means.
- Public Accessibility: The 5th AMLD mandated public access to beneficial ownership information for companies and commercial trusts. Due to an EU court ruling, several EU member states, including Luxembourg and the Netherlands, moved to restrict public access to their beneficial ownership registers until legislative adjustments are made.
- Criminal Penalties: The 6th AMLD enhanced criminal penalties for money laundering offenses and expanded corporate criminal liability.
- National Variations: Despite the common framework, implementation varies between member states, creating compliance challenges for cross-border businesses.
The Netherlands: Specific UBO Requirements
The Netherlands implemented the EU’s UBO requirements with specific national provisions:
- UBO Registration Act: Effective September 27, 2020, Dutch entities are required to register UBOs in the Dutch Commercial Register (Kamer van Koophandel)
- Public Information or restricted? It was the intention that the information would be public, but due to privacy (and security) concerns, as written in the previous paragraph, restrictions were set up as to the public availability, also see this link from the Dutch government on this subject: link.
- Verification Duty: Entities must take “reasonable measures” to identify and verify UBOs, maintaining internal records.
- Penalties: Administrative sanctions include fines up to €21,750, with criminal sanctions for intentional violations.
- Updating Requirement: Companies must update UBO information within seven days of becoming aware of any changes.
Key Industries and Contracts Where UBO Matters
The importance of UBO disclosure varies significantly across industries and contract types. While requirements can appear in almost any business relationship, six industries face particularly frequent and stringent UBO disclosure requirements:
List of Industries
- Financial Services: Banks, payment processors, investment firms, and insurance companies face the most comprehensive regulatory mandates
- Real Estate: Commercial property transactions, development projects, and property management services
- Technology: Software providers, cloud services, and cybersecurity companies, especially those handling sensitive data
- Healthcare & Pharmaceuticals: Medical device manufacturers, pharmaceutical distributors, and healthcare service providers
- Government Contractors: Companies in defense, infrastructure, public utilities, and other sectors serving government entities
- Professional Services: Law firms, accounting practices, consulting firms, and other advisors with fiduciary responsibilities
Financial services companies naturally face the most stringent requirements, with banks, payment processors, investment firms, and insurance companies all subject to explicit regulatory mandates. However, several other sectors now routinely encounter UBO requirements in their operations.
Real estate transactions frequently involve UBO disclosure, particularly for commercial property acquisitions and development projects. A commercial real estate firm recently had to delay closing on a major property acquisition because their ownership structure involved multiple layers of holding companies, and the lender required complete UBO transparency before approving financing. Companies in this sector should prepare UBO documentation well before entering into purchase agreements or seeking financing.
Technology companies, particularly those handling sensitive data or providing critical infrastructure services, increasingly face UBO scrutiny. Government contracts almost universally require UBO disclosure, and many enterprise clients now include these requirements in their vendor security assessments. A cybersecurity provider lost a promising government contract because they couldn’t adequately document the beneficial ownership of one of their offshore investment partners within the required timeframe.
In healthcare and pharmaceuticals, UBO requirements appear in various contexts, from hospital system vendor agreements to pharmaceutical distribution contracts. Regulatory concerns about conflicts of interest and the integrity of the healthcare supply chain have intensified focus on ownership transparency. A medical device manufacturer was surprised when a hospital system required UBO disclosure before finalizing a procurement agreement, a requirement that stemmed from the hospital’s compliance policies rather than direct regulatory mandates.
Types of Contracts involved
The types of contracts where UBO disclosure commonly appears include:
- Financial agreements (loans, investment documents, banking relationships)
- Government and public sector contracts at all levels
- Long-term supply or service agreements, particularly in regulated industries
- Joint venture and partnership agreements
- Property purchase and lease agreements for commercial real estate
- Merger and acquisition documentation
- Distribution agreements, especially cross-border arrangements
- Software and technology licensing for enterprise solutions
A manufacturing company was caught off-guard when their standard distribution agreement with a European partner suddenly included UBO requirements, delaying their expansion plans by several months. Had they anticipated this increasingly common contractual element, they could have prepared the necessary documentation in advance rather than scrambling to compile it under time pressure.
Managing UBO Requests: The Dual Challenge
Requesting UBO Information Effectively
Many businesses find themselves needing to request UBO information from counterparties. Even a software company we recently advised includes UBO disclosure requirements in their enterprise contracts because their payment processor requires them to identify the UBOs of clients generating significant annual revenue. While the clause appears in their standard contracts, they actively enforce it only for larger clients, creating a tiered approach that balances compliance with practical business considerations.
When requesting UBO information, clarity is crucial. Rather than simply demanding “beneficial ownership information,” specify the ownership threshold that triggers disclosure, the documentation required for verification, how ownership changes should be reported, and the consequences of providing false information. A manufacturing client improved their compliance process by creating a detailed UBO information request form that clearly outlined these requirements, reducing back-and-forth communications and accelerating their onboarding process by nearly 40%.
Providing UBO Information Efficiently
Most businesses will also find themselves needing to provide UBO information to partners, financial institutions, or customers. A technology services provider we work with recently secured a major contract partly because they could provide comprehensive UBO information within 24 hours, while competitors took days or weeks. The client, under pressure to implement a new system quickly, viewed this efficiency as a demonstration of operational excellence and organizational reliability.
The key to responding quickly to UBO requests lies in preparation. Companies that maintain current UBO documentation and have streamlined processes for responding to requests gain a distinct advantage. A distribution company that previously scrambled to gather UBO information when requested implemented a quarterly review process that ensures their documentation remains current, reducing their response time from weeks to hours and eliminating the frantic search for information that previously disrupted operations.
Building an Effective UBO Management Framework
Implementing a structured approach to UBO management can transform a potential compliance headache into a streamlined process. Consider these five essential elements that successful companies have implemented:
- Centralized ownership intelligence: Maintain a single source of truth for all ownership information, including complex group structures. A multinational technology company created significant efficiencies by consolidating ownership data previously scattered across legal entities into a single database accessible to authorized employees.
- Proactive disclosure templates: Develop standardized formats for different disclosure requirements. A software company we advised created three different UBO disclosure templates—basic (10% threshold), standard (25% threshold), and comprehensive (includes indirect control)—allowing them to quickly respond to requests with varying requirements.
- Clear escalation pathways: Establish procedures for handling complex or unusual UBO requests. We helped a retail chain that implemented a tiered approach. Routine requests are handled by their dedicated back office & paralegal team handling UBO requests, while requests involving sensitive jurisdictions or unusual thresholds are escalated to the legal manager and/or senior management.
- Compliance calendar: Create a schedule of required reviews and updates based on both internal policies and external requirements. A financial services firm avoided penalties by implementing quarterly ownership reviews synchronized with regulatory reporting deadlines.
- Documentation hierarchy: Establish a clear hierarchy of documentation, from primary sources (share registers, articles of incorporation) to derivative summaries. A Bio-Tech client streamlined their process by maintaining both detailed supporting documentation and executive summaries tailored to different audiences.
Comprehensive Documentation Management
The foundation of effective UBO management is comprehensive, standardized documentation. An international consulting firm created what they call a “UBO passport” – a standardized digital package containing all essential UBO information in formats that satisfy various requesting entities. This package includes a visual representation of their ownership structure, standardized declaration forms for all UBOs, verified identification documents, and supporting evidence of ownership claims.
The firm reviews and updates this package quarterly, ensuring they’re always prepared to respond to UBO requests. When a potential client recently requested UBO information as part of their vendor onboarding process, the firm provided their complete package within hours, impressing the client with their professionalism and accelerating the contract negotiation process.
Establishing Clear Communication Protocols
UBO requests often create urgency because they involve sensitive personal information and complex corporate structures. A real estate development group created an internal UBO communication protocol that specifies exactly who should be contacted when UBO information is required, what information can be shared with whom, and how sensitive documents should be transmitted.
Their protocol includes a designated email address for all UBO-related communications, templates for requesting additional information from shareholders, and secure file-sharing procedures for transmitting sensitive documents. When a banking partner recently requested updated UBO information with a tight deadline, this clear protocol enabled them to gather and provide the necessary information without the confusion and delays that had previously hampered similar requests.
Assigning Dedicated Responsibility
UBO compliance requires dedicated responsibility and clear accountability. A manufacturing client previously experienced significant delays in contract negotiations because their UBO information was scattered across different departments with no clear ownership. By designating their corporate counsel as the “UBO officer” with authority to maintain and provide this information, they reduced their response time from weeks to days.
In smaller organizations, this responsibility might fall to the CFO or general counsel, while larger entities might have a dedicated compliance function. Regardless of company size, having at least one backup person familiar with UBO processes ensures continuity during absences. A technology company implemented this approach after losing a potential partnership when the only person familiar with their UBO documentation was unavailable during a critical negotiation period.
Implementing Regular Review Processes
UBO information isn’t static – ownership structures change, controlling interests evolve, and regulatory requirements update. A financial services firm implemented a monthly UBO review process after experiencing a significant compliance issue when a major shareholder’s reorganization wasn’t properly reflected in their UBO documentation. This proactive approach has prevented similar issues and demonstrated their commitment to regulatory compliance to partners and regulators alike.
When you set up an Effective review processes, include scheduled periodic reviews (even when no changes are known). These reviews ensure that, whenever there’s a shift in ownership or control, the necessary reporting is up to date. A healthcare technology company avoided potential regulatory penalties by identifying a previously undisclosed beneficial owner during one of their quarterly reviews, allowing them to update their regulatory filings before an upcoming audit.
Leveraging Appropriate Technology
For companies with complex ownership structures or frequent UBO requests, technology can significantly enhance efficiency. An international retail group implemented a dedicated UBO management module in their compliance system that allows them to track UBO information, set automated review reminders, and quickly generate reports in various formats requested by different partners and regulators.
Technology solutions might include centralized document management systems with appropriate access controls, automated verification tools that check UBO information against public records, workflow tools to track requests and approvals, and calendar systems for review reminders. Even smaller companies can benefit from relatively simple technological approaches, such as encrypted storage systems for sensitive documents and standardized digital templates for UBO information.
From Compliance Burden to Strategic Advantage
Companies that excel at UBO management transform what many view as a regulatory burden into a strategic advantage. A private equity firm noted that they give preferential consideration to investment opportunities where the company can quickly provide accurate UBO information. To them, it indicates not only regulatory compliance but also good governance and organizational discipline – qualities that significantly impact investment decisions.
Speed in providing UBO information can be particularly valuable in time-sensitive transactions. A technology services provider recently won a significant contract partly because they could provide comprehensive UBO information immediately, while their competitors required days to gather the same information. The client, facing tight implementation deadlines, viewed this efficiency as a positive indicator of the provider’s overall operational excellence.
Beyond speed, transparency in UBO matters builds trust with partners, clients, and regulators. A pharmaceutical distribution company that had previously been hesitant to disclose ownership information found that their new proactive approach to UBO transparency actually opened doors to partnerships with larger organizations that valued their clear governance structures and compliance mindset.
Conclusion
Structured Approach
UBO requirements have become a standard feature of the business landscape. Rather than treating these requirements as a burden or an afterthought, forward-thinking companies implement structured approaches that turn UBO compliance into a business advantage. By developing comprehensive documentation, establishing clear communication protocols, assigning dedicated responsibility, implementing regular review processes, and leveraging appropriate technology, organizations can transform UBO compliance from a source of delay into a demonstration of operational excellence.
Proactive Approach
Whether you’re requesting UBO information from others or providing it in response to contractual requirements, a proactive approach will save time, reduce risk, build trust, and potentially give you an edge in competitive situations. In today’s complex regulatory environment, effective UBO management isn’t just about compliance – it’s about strategic business advantage.
About AMST Legal
At AMST Legal, we provide advice how to improve your (legal) processes. Compliance work – like UBO requests – is part of that. Contact us at lowa@amstlegal.com or book a meeting here for help with your legal (compliance) framework.
NDA-skyldigheter: Vad du måste veta (3)
1. Inledning
Är du redo att fördjupa dig i sekretessavtal (NDA)? Vi gick igenom grunderna och centrala delar av sekretessavtal i del 1 här, och i del 2 här förklarade vi fyra vanliga klausuler som parter, definitioner och syftet med sekretessavtal. Nu ska vi utforska de viktiga sekretesskyldigheterna som gäller för den mottagande parten enligt ett sekretessavtal.
Lär dig hur du skyddar din känsliga information under affärspartnerskap med denna artikel “NDA-skyldigheter: Vad du måste veta”.
Fyra snabba fakta om NDA
Enligt ett NDA, vanligt benämnt sekretessavtal, går parterna med på att:
- Sekretesskyldigheter: Hålla information hemlig, använda den endast för det ändamål som anges i sekretessavtalet och inte avslöja den för obehöriga parter.
- Upprätthålla informationssäkerhet: Implementera rimliga säkerhetsåtgärder för att skydda informationens konfidentialitet.
- Undantag: I vissa fall gäller inte sekretessen, som när informationen är offentligt tillgänglig eller om upplysningar krävs enligt lag.
- Förstöra information: När konfidentiell information ska återlämnas eller raderas då sekretessavtalets syfte har uppnåtts.
Även om sekretessavtal vanligtvis har företräde framför lagreglering, kan särskilda lagar och förordningar tillämpas. Exempelvis sekretesslagar av olika slag, GDPR, arbetsrättsrättsregler och regler om företagshemligheter.
2. Sekretesskyldigheter för den mottagande parten
Begränsad användning av konfidentiell information
I ett sekretessavtal har den mottagande parten huvudansvaret för att skydda sekretessen. Detta innebär vanligtvis att den konfidentiella informationen endast får användas för det angivna ”syftet” enligt avtalet. Se vår tidigare artikel här där vi förklarar varför detta är viktigt och hur man korrekt formulerar syftet. Genom att göra detta säkerställer man att den konfidentiella informationen hålls hemlig och hindrar mottagaren från att avslöja den för en tredje part.
Ett välskrivet sekretessavtal bör uttryckligen begränsa mottagande part från att inte bara direkt och medvetet missbruka eller avslöja konfidentiell information, utan också från att göra det indirekt, vårdslöst eller oavsiktligt.
Utvidgning av tillåtna mottagare
En av de viktigaste delarna av ett sekretessavtal som kräver särskild uppmärksamhet är: “Vem får ta emot den konfidentiella informationen?”
Eftersom det ofta inte bara är parterna i sekretessavtalet som behöver få den konfidentiella informationen är det viktigt att utvidga dessa sekretessskyldigheter bortom den mottagande parten själv.
Vanliga exempel på tredje parter inkluderar:
- Professionella rådgivare såsom revisorer, konsulter eller advokater,
- Agenter, direktörer, anställda och
- Filialer/bolag inom samma koncern.
Se därför till att du inkluderar mycket tydliga definitioner av tredje parter som får ta emot den konfidentiella informationen och under vilka omständigheter.
Vanligtvis är dessa omständigheter att dessa tredje parter endast får ta emot den konfidentiella informationen om de har:
- ett behov av att veta informationen i samband med syftet (som definieras i sekretessavtalet), och
- juridiska skyldigheter för sekretess och icke-användning med avseende på den konfidentiella informationen som väsentligen liknar mottagande parts skyldigheter enligt sekretessavtalet.
Upprätthålla informationssäkerhet
Det är avgörande att förstå vikten av att skydda den konfidentiella informationen som delas. Om du tar emot konfidentiell information är det viktigt att förstå och acceptera att du är skyldig att implementera rimliga säkerhetsåtgärder. Detta inkluderar tekniska, fysiska och organisatoriska åtgärder för att skydda informationens konfidentialitet och förhindra obehörig åtkomst eller avslöjande.
Undantag från sekretesskyldighet
Normalt innehåller sekretessavtal vissa undantag från de sekretessskyldigheter som åläggs den mottagande parten. När det kan bli fallet inkluderar nedan fyra olika exempelsituationer.
Allmänt känd information
Om informationen blir offentligt tillgänglig för allmänheten (utan att mottagande part brutit mot sekretessavtalet) upphör sekretessskyldigheterna för mottagaren och dess dotterbolag att gälla som bindande.
Tidigare vetskap
Om informationen införs i en offentlig domän (utan att mottagande part brutit mot sekretessavtalet) befriar också mottagaren och dess dotterbolag från sekretessskyldigheterna.
Tredje-parts avslöjande (inklusive dotterbolag)
När mottagaren får information från en tredje part som har laglig rätt att avslöja den, behöver de inte längre hålla informationen konfidentiell.
Rättsliga krav
Ett viktigt undantag tillåter mottagaren, dess dotterbolag/filialer eller tredje parter att avslöja konfidentiell information genom en domstolsorder eller myndighetsbegäran. Vanligtvis ska den avslöjande parten informeras innan informationen lämnas ut för att följa den juridiska processen.
Återlämnande/destruering av informationen
När syftet med att dela konfidentiell information är uppnått kan den avslöjande parten begära att den mottagande parten återlämnar eller förstör den konfidentiella informationen som fortfarande är i deras besittning.
Till exempel kan den avslöjande parten begära att den mottagande parten återlämnar kopior, prover och annat material som innehåller konfidentiell information samt kräva att den mottagande parten raderar/förstör digitala data som innehåller konfidentiell information.
På grund av dagens komplicerade IT-miljöer hos de flesta företag kan det vara antingen väldigt utmanande eller kostsamt att helt eliminera data. Därför råder vi att inkludera formuleringar som: ”parterna är överens om” i sekretessavtal gällande destruering av digital data.
Specifika lagar kan tillämpas
Även om sekretessavtal vanligtvis omfattar reglering av sekretesskyldigheter är det viktigt att inse att specifika lagar och förordningar kan åsidosätta eller komplettera avtalsregleringen i vissa situationer.
Exempel på sådan rättsreglering inkluderar: sekretesslagar, GDPR, arbetsrättsregler och regler om företagshemligheter.
Dessa lagar och förordningar kan ställa ytterligare krav eller medge mer vittgående undantag, så beakta dessa skyldigheter när du ingår eller tolkar ett sekretessavtal för att säkerställa fullständig efterlevnad. Dessutom, se även denna artikel från Hogan Lovells för ytterligare information om ämnet.
3. Slutsats
Medan titeln på denna artikel “Skriv inte på det där NDA:et än! Förstå dina skyldigheter först” kanske kan låta lite dramatisk, understryker den en viktig poäng: sekretessavtal underskattas ofta.
Att förstå sekretesskyldigheter enligt sekretessavtal, särskilt för den mottagande parten, är avgörande. Det är viktigt att inte förhasta sig och skriva under dessa avtal utan att helt förstå den potentiella påverkan på ditt företag och din handlingsfrihet.
Genom att noggrant granska och förstå dina skyldigheter kan du skydda dina intressen, undvika kostsamma rättsliga tvister och säkerställa ett framgångsrikt partnerskap.
Kontakta oss på +31650608964 eller lowa@amstlegal.com om du behöver mer information eller rådgivning om detta ämne.
Don’t Sign That NDA Yet! Understand Your Obligations First
Introduction
Ready to dive deeper into Non-Disclosure Agreements (NDAs)? We covered the basics and key elements of NDA’s in part 1 here and in part 2 here we covered four common clauses like Parties, Definitions and the Purpose of NDA’s . Now, let’s explore the crucial confidentiality obligations for the receiving party in an NDA.
Learn how to safeguard your sensitive information during business partnerships with this Article ‘Don’t Sign That NDA Yet! Understand Your Obligations First’.
Quick Facts
Under NDAs, also called confidentiality agreements, parties agree the following:
- Confidentiality Obligations: keep information secret, use it only for the purpose mentioned in the NDA and don’t disclose it to unauthorized parties.
- Maintain Information Security: implement reasonable security measures to safeguard the confidentiality of the information.
- Exclusions: in certain circumstances the confidentiality doesn’t apply, such as publicly available information or disclosures required by law.
- Destruction of Information: when to return or delete confidential information once the purpose is fulfilled.
Although NDAs generally take precedence over the law, specific laws & regulations may apply. Think specific secrecy laws, the GDPR, employment laws and Trade Secret Regulations.
Confidentiality Obligations of Receiving Party
Limited Usage of the Confidential Information
In an NDA, the receiving party has the main confidentiality responsibilities.
This generally includes using confidential information exclusively for the designated “purpose” in the NDA. See our previous article here where we explain why this is important and how to cover the purpose correctly. Doing so ensures safety of keeping the confidential information secret, and makes the recipient refrain from disclosing it to any third parties.
A well-drafted NDA should explicitly restrict the receiving party from not only directly and deliberately misusing or disclosing confidential information but also from doing so indirectly, negligently, or unintentionally.
Extension of allowed recipients
One of the most important parts of the NDA to pay particular attention to is:
‘Who is able to received the Confidential Information’?
As it will often not only be the parties to the NDA itself who need to receive the confidential information, it is important to extend these confidentiality obligations beyond the receiving party itself.
Most common examples of third parties:
- professional advisor like accountants, consultants or lawyers,
- agents, directors, employees, and
- affiliates
Therefore, ensure that you include very clear definitions of third parties that may receive the Confidential Information and under which circumstances.
Usually these circumstances are that these third parties can only receive the confidential information if they have:
- a need to know in connection with the Purpose (as defined in the NDA), and
- the legal obligations of confidentiality and non-use with respect to the Confidential Information substantially similar to the obligations of the Receiving Party under this Agreement.
Maintain Information Security
Realizing that it is important to also protect the security of the confidential information shared is crucial.
If you receive confidential information it is important to understand and agree that it is are required to implement reasonable security measures. This includes technical, physical and organizational measures safeguarding the confidentiality of the information and prevent unauthorized access or disclosure.
Exceptions from confidentiality obligations
Typically, NDAs include certain exceptions to the confidentiality obligations imposed on the receiving party.
Public Knowledge
If the information becomes publicly available (without breach of the NDA), the confidentiality obligations cease to bind the recipient and their affiliates.
Prior Knowledge
The entry of the information into the public domain (without a breach of the NDA) also releases the recipient and their affiliates from confidentiality obligation
Third-Party Disclosure (Including Affiliates)
When the recipient receives information from a third party who has the legal right to disclose it, they no longer need to maintain its confidentiality.
Legal Requirements
An important exception allows the recipient, affiliates, or third parties to disclose the confidential information through a court order or governmental request. Typically, the discloser should be notified before the information is disclosed to comply with the legal process.
Return/destruction of information
When the purpose of sharing confidential information is achieved, the disclosing party may request the return of the disclosed confidential information or the deletion/destruction of the confidential information if it remains in the possession of the receiving party.
For example, the disclosing party can request the receiving party to return copies, samples, and any other tangible materials containing confidential information; and to delete/destroy digital data containing confidential information.
In the current complicated IT setup of most companies, completely eliminating data can be either highly challenging or cost-prohibitive. For this reason, we advise to add wording similar to: parties agree
Specific laws might apply
Although NDAs generally cover confidentiality obligations, it is important o realize that specific laws and regulations may override or complement them in certain situations.
Examples are: secrecy laws, the GDPR, employment laws, and Trade Secret Regulations.
These laws & regulations can impose additional requirements or exceptions so do consider these obligations when agreeing or interpreting an NDA to ensure full compliance. Also see this article from Hogan Lovells on this subject.
Conclusion
While the title of this article ‘Don’t Sign That NDA Yet! Understand Your Obligations First’ might be a bit dramatic, it underscores an important point: NDAs are often underestimated.
Understanding confidentiality obligations under NDAs, particularly for the receiving party, is crucial.
It’s essential not to jump into signing these agreements without fully understanding the potential impact on your business and your ability to operate freely.
By carefully reviewing and understanding your obligations, you can protect your interests, avoid costly legal disputes, and ensure a successful partnership.
Please reach out to us via +31650608964 or lowa@amstlegal.com if you need more information or advice about this subject.
NDAs Explained – What You Need to Know (part 1)
NDAs ensure that confidential information is used solely for the specified purpose set out between the parties in a business relationship. In the world of business, where ideas, innovations, financial information and secrets are the keys to success, Non-Disclosure Agreements (NDAs) often play an important role in protecting a company’s confidential information. This article will provide a comprehensive overview of NDAs in the context of Business to Business (B2B) dealings.
What is an NDA?
An NDA, also referred to as a Confidentiality Agreement, is a legally binding contract between two or more parties to protect confidential information which may be shared during the course of their business relationship. More specifically, confidential information is non-public information of a company that could harm the company when it would be shared in public. Usually a list of the Confidential information is included in the NDA, containing for example: trade secrets, know-how, products and technology-related information, discounts, customer lists, sales and financial information, business plans, etc.
Why and when do we need an NDA?
In the B2B context, NDAs can be an essential tool for protecting proprietary knowledge, trade secrets and other confidential data that is important for a company to maintain its competitive advantages. That sensitive information, therefore, should be defined clearly and carefully in NDAs. However, be careful not to define it too narrow to ensure that you have not missed an important category. By using a properly drafted NDA, your company can secure valuable information from competitors or other third parties who may benefit from the disclosure of such information.
Primary objective
The primary objective of an NDA is to ensure the disclosed sensitive information is securely used and handled, preventing its use or disclosure without proper permission and authorization by the disclosing party. An NDA is often signed at the beginning of a business relationship or before entering into a business relationship.
Example
Common example: a technology company is planning to sell and offer specialized software solutions to an enterprise customer. The companies start by discussing how to integrate the software into the customer’s systems to ascertain the price for the integration and the use of the software. For this, the technology company might share insights about their pricing, SLA, policies and software, and the customer, in turn, might explain their challenges and share business plans. While doing so, the companies therefore plan to share documents including non-public, hence confidential information. This is why it is advised that these companies sign an NDA before sharing this confidential information to each other. Such an NDA can be terminated when the parties sign a final customer contract, which should also include confidentiality terms.
How does an NDA protect your confidential information?
Like any other legal contracts, an NDA carries important legal consequences for breach of contract. Depending on the severity of a breach, its consequence can range from lawsuits, financial penalties to – in extreme cases – criminal charges. Breaching an NDA can also harm a party’s reputation, which may lead to other long-lasting consequences to its business, especially in business relationships and industries where trust and confidentiality are crucial.
Claims and lawsuits relating to a breach of an NDA are not common, but it absolutely happens that a company needs to pay out a penalty for breach of confidentiality. We have even advised on this matter a few times in the past.
What type of NDA do you need?
There are various types of NDA that can be used based on the specific circumstances and the needs of the parties involved. Below are the three common types of NDA:
- Unilateral NDA (One-sided NDA): In a unilateral NDA, one party, typically the seller, imposes on the other party the obligation to secure the information and not to disclose or use the information for any purpose other than what is specified in the agreement. In a B2B context, unilateral NDAs are often used between buyers and sellers. For instance, a Biotech company (seller), may employ a unilateral NDA to prevent the buyer from disclosing sensitive information they have gained during the purchase of products or services, such as intellectual property and computer technology. Also common in Public Tenders and for RFI (Request for information) in RFP (Request for Price) situations.
- Mutual NDA (Two-sided or Mutual NDA): A mutual NDA involves two parties, and both parties will be sharing sensitive information with each other and agree that both sides will be bound by confidentiality obligations. Mutual NDAs are frequently used when the parties need to exchange considerable amounts of confidential information during their negotiations or business relationship. Such situations can be Joint Ventures, Vendor Contracts or Mergers and Acquisitions.
- Multilateral NDA (Three or More Parties NDA): A multilateral NDA includes three or more parties, where at least one party shares sensitive information with other parties and enforces confidentiality obligations. This type of NDA streamlines the paperwork and administration for the parties in a sense that the parties do not need to enter several unilateral or bilateral NDAs with one another. In a business relationship involving three parties, where all anticipate disclosing confidential information, a single multilateral NDA can replace the need for three different bilateral NDAs between each pair of parties. Such situations can be Partnerships, Government Contracts (like defense and aerospace contracts) and Consortium Agreements.