With more than ten years of experience and offices in Medellín and Bogotá—two of the most vibrant cities for doing business in Colombia—we have had the opportunity to advise on, draft, negotiate, and even litigate around the contracts most commonly used by business owners in the country.
Based on that experience, we prepared a list that summarizes the contracts most commonly used by business owners in Colombia, what they are for, how they are used in practice, and the most common mistakes we usually see. At the end, we also share some useful tips to avoid setbacks. These are:
- Employment contract.
- Service contract.
- Partnership agreement, joint ventures.
- Lease agreement.
- Contract of sale.
Each of these contracts has its own logic and usefulness, and this is how they work, in simple terms:
Employment contract
Through this contract, a large percentage of companies’ workforce is hired; its essential elements are:
- The personal provision of a service.
- Remuneration called salary.
- The subordination that entails the payment of social benefits and comprehensive social security.
This contract has several modalities, which makes it versatile enough to meet all human resources needs in organizations.
Service contract
Through this contract, another large percentage of companies’ workforce is engaged, but a large number of services are also contracted between entities that require services from others, so it can also be considered a client contract; its essential elements are:
1. The personal provision of a service.
2. The remuneration known as fees.
Partnership agreement, joint venture (cuentas en participación)
At this point, we will allow ourselves a wildcard; that is, we will look at two contracts instead of just one, since both serve a similar function—namely, they are used to associate several natural or legal persons in pursuit of a joint objective, sharing profits and risks under the agreed conditions.
These two contracts are widely used, particularly the first one, which has allowed the registration of a large number of Simplified Joint Stock Companies (SAS), although it is not the only option of corporate type, it is the most used; while the second one is usually chosen when collaboration or association is sought without creating legal entities.
Lease agreement
Through this contract, access is usually obtained to the use and enjoyment of movable and immovable property, which is particularly useful for better cash-flow management in organizations; it is important to mention that the commercial lease regime entails a series of special rules regarding the rights and obligations of both parties involved.
Sale and purchase agreement
Through this contract, goods are procured for the operation of business organizations and contracts are also entered into with their customers, particularly those engaged in the commercialization of material products.
However, it is important to mention that, although these are the most commonly used agreements, this is not always done in the most adequate way possible. Some of the most frequently made mistakes are: not using written contracts, not signing the contracts by the indicated parties, not reviewing the contracts for compliance or reality, which leads to defective compliance, among others.
In accordance with the above, we advise all businessmen, that when drafting, revising or negotiating this type of contract, to always count on an expert lawyer in contract negotiation, who can support them in achieving a balanced contract, in which the interests of all parties are present and satisfied in a fair measure.
