What is a Joinder Agreement?
A joinder agreement is a legal document that acts as an attachment to an existing legal agreement or contract to incorporate an additional party and obligates them to its terms. It essentially extends the initial contract’s obligations and benefits to another entity.
More particularly, a joinder agreement or "joinder of agreement" is an agreement to join in an existing agreement by a party that is not already a direct signatory to the existing agreement. For intent and clarity purposes , the replicated phrase "under the terms of this Joinder Agreement" or its equivalent should appear at the end of each relevant paragraph of the existing agreement. If the joinder agreement includes additional terms, the phrases "in addition, it is agreed" or "furthermore" can be added at the beginning of the new paragraph.
A joinder agreement is not a standalone agreement, but a supplementary document that incorporates or references an existing agreement to which a new party wishes to be bound. It is often used in business transactions where multiple parties are involved and one of the parties wants to bring in another party into the scope of the contract.
Joinder Agreement Essentials
The key elements of a joinder agreement template include the parties, the terms, and the conditions. The parties are one of the most vital parts of a joinder agreement – they should be explicitly defined. The terms should include information on how a member will come to be part of a company. There should also be rules of confidentiality that dictate how party members will treat trade secrets, customer lists, and other sensitive information. There are also rules about what happens in the event of an exit or death of a member, and those rules will dictate how and when a member can leave. Finally, if a member were to exit, there are often restrictions, such as having to sell their shares back to the company and not being able to voice opinions on sub-sections of the business. The confidentiality rules apply to any information that could be construed as an asset to the company, so things like larger client lists, special expertise from a particular individual, and physical assets should all have some factors of confidentiality that allow members to report misconduct or illegal practices, but nothing that would enable them to take advantage of it for their personal gain.
When to Implement a Joinder Agreement
A joinder agreement is used when there are multiple parties who are included in a contract. For example, if a company has a contract with a vendor that requires all vendors working with the company to agree to specific terms and is including all employees of the company in this requirement, then a joinder agreement would be used. A custom error and omissions indemnity clause may be included in the vendor contract and require that anyone who enters into a contract with the company also agrees to the clause.
Joinder agreements can be both voluntary and involuntary. In the example above with the custom error and omissions indemnity clause, the agreement may be involuntary. In this scenario, the employees and vendors may not have to agree to the custom error and omissions indemnity clause in order to continue doing business with the company. Because these parties are already bound by the overarching contract that the clause exists in, they will be considered to automatically agree to it. However, a free-standing joinder agreement would be voluntary and require the party to consent to it before being subject to its restrictions or requirements.
These contracts are also used to increase the power of contracts that require judicial acknowledgement or similar agreement. For example, a monetary contract may need to be recorded with the court in order to be subject to its enforcement ability. Because the introduction of a new party to a contract may require that the contract be re-adjudicated, a joinder agreement is used to join that individual to the already adjudicated contract. It essentially extends the court order that the contract already exists as a contract that may be enforced by the court to the newly added party and makes that party subject to any contractual clauses governing the relationship between the parties in question.
Joinder agreements are typically fairly short documents, though they must always be attached to the overarching contract and filed with the relevant court in order for both agreement and adjudication purposes. In particular, the joinder agreement must be attached to the overarching contract that it addresses as an addendum and filed with the relevant court in instances where the contract has been adjudicated and made into an enforceable court order.
In some circumstances, it may be possible to use joinder agreements without requiring court adjudication. For example, if a business has a master service agreement (MSA) that governs all contracts it enters into for a given year, a new contract may be entered into that attaches the MSA to the new contract and is therefore governed by the MSA. Disposing of the need for these agreements is one of the primary functions of typical MSA language.
Additional uses for joinder agreement templates include those which govern co-ownership interests or other parties who may be joining with others into a larger transaction. If two brothers own several apartment complexes and decide to pool their money and purchase a third one together, the two can execute joinder agreements that bind them to the transaction as individuals (in addition to the legal entity they may form to accomplish the transaction) and make them subject to the relevant liability provisions of their original agreements.
Finally, one party may execute a joinder agreement under conditions of leverage from the other party. For example, if you are purchasing a car with a loan, the bank may ask you to execute a joinder agreement with the seller of the car so that if you fail to pay your loan, the bank may repossess your vehicle directly from the seller. A joinder agreement like this may be a requirement on the seller’s part or may be voluntarily agreed to by the buyer.
Advantages of Using a Joinder Agreement Template
The use of a joinder agreement template offers numerous advantages to businesses, particularly in terms of efficiency and compliance. First and foremost, templates save time. Creating a joinder agreement from scratch is a time-consuming process that involves careful drafting and legal consideration of the specific circumstances of each potential member. This process can be avoided by using a pre-existing template that already has the necessary provisions and information outlined.
Moreover, templates help ensure compliance with relevant laws and regulations. Drafting a joinder agreement without a template can lead to gaps in the necessary information or vital sections missing altogether, leading to compliance issues. Templates come with recommended language that adheres to state laws and best practices. This can be especially convenient for those who are new to creating joinder agreements.
Additionally, using a template minimizes legal risks. Joinder agreements are more than just formalities—they are legally binding transactions. A poorly crafted or incomplete agreement puts the company at unnecessary risk, opening the door for member disputes or even legal action. A well-prepared template already has stipulations and limitations that help protect the company.
Finally, templates provide a means to promote consistency across all members. Having a standard joinder agreement template for all members to sign ensures continuity in the language used and the information required in the agreement. Businesses can also update the template as needed to reflect changes in laws or business practices while also assuring that all members are on the same page.
Ultimately, the benefits of using a joinder agreement template outweigh the disadvantages, making it a useful tool for companies that need to draft thorough and compliant joinder agreements efficiently.
How to Draft a Joinder Agreement Template
When you are creating a Joinder Agreement Template, there are several key steps that you will need to take if you want to produce a high quality template.
Step 1: Consider What Your Template Needs to Cover
A joinder agreement is intended to make is binding upon a person’s heirs and personal representatives. If your agreement is too vague or lacks clear language on the responsibilities of the person signing it, you may have a challenge on your hands if you need to enforce it.
Your agreement should cover the following:
Listing all of the obligations of the parties involved in the agreement. In particular, if your agreement has an extension provision , it should be clear how long the term is extended for.
Tip: Use clear language that does not have any space for interpretation. You need to have a crystal clear idea of what you mean so that there is no room for dispute.
Step 2: Have a Standard Template for All Agreements
A limited partnership agreement template should be standardized for all agreements and should also detail how a Joinder Agreement can be used by amendments. Either the Limited Partnership Agreement should be amended or the Joinder Agreement can be the tool used that will amend the Limited Partnership Agreement, depending upon our business needs. You should consult with an attorney to better understand which instrument is best suited for your needs.
Step 3: Know When to Get Legal Help
If you have questions about how to write an agreement, you should consult with a qualified attorney who can help you ensure that all documents are written legally, properly, and will give you the protection that you need. Because many companies rely on these agreements for their business, it is important that you have professionally drafted documents.
Common Pitfalls
One of the most common errors in the work of those who have only limited experience with joinder agreement edits is improper "thou shalts" and "thou shalt nots" in the joinder, rendered primarily by lack of coordination between the terms and the context to which they apply. For example, language requiring that money be deposited in the Deposit Account (or "account" as that term is defined in the joinder), when the borrower is not granting a security interest in favor of the lender to one or more deposit accounts, should be avoided. Similarly, if you need to obtain a waiver or consent from someone, make sure that you require the consent of the appropriate party. In short, if the joinder requires something, make sure that it correlates to the grant of rights being made to the grantor of the joinder. If it does not, it should be avoided.
Joinder agreements for secured lending transactions often have "dragnet" provisions that sweep in items into the joinder that are not intended to be subject to the joinder. For example, if a joinder covenant requires that a debtor grant a lien on "all property that is not otherwise excluded under [the joinder] and is now or hereafter owned by the debtor," or language of similar effect, it may be written too broadly if the joinder should not be a "catch all" in the case of a debtor that is not executing a pledge and security agreement and filing a financing statement against two or more classes of personal property. A joinder typically should be limited to property that is either specifically subject to the liens granted to the lender in the joinder, or property the granting of liens on which serves to achieve a broader grant of a lien on property that is not subject to any provision in the loan document.
Legal Deductions
Legal considerations for the drafting of a joinder agreement between a SPA party and a proposed Purchaser are numerous and ever increasing. It is important to ensure that a joinder agreement complies with the provisions of any applicable laws and regulations, including securities laws if the acquisition of shares is involved. The purchaser should realize the importance of having qualified and experienced legal counsel prepare a Joinder Agreement.
As an example a subscriber must pay from its own funds and not those of others, whether directly or indirectly for its shares and the subscriber must represent and warrant that it has received the joinder agreement at least one full business day prior to signing and that the subscription agreement is binding. If the deal is structured as a private placement with a securities regulator the subscription agreement needs to comply with such regulations.
It is also common for a Joinder Agreement to contain a confidentiality provision. Any parties who come to learn of Confidential information must be bound by a confidentiality provision. It is wise to make this clear in Joinder Agreements.
FAQs
Q: What is the purpose of a joinder agreement?
A: A joinder agreement is a legal document used to add new members to an existing limited liability company (LLC), corporation, partnership, or other type of business entity. The purpose is to update the governing documents to reflect the new ownership structure or the inclusion of a new party without the need to create a new entity.
Q: When is a joinder agreement necessary?
A: Joinder agreements are necessary when there is a change in the ownership of an entity, such as adding a new member, partner, or shareholder. They are not typically necessary when there is a transfer of ownership within a member or partner (such as a sale of interests between existing owners without new parties involved).
Q: Who prepares the joinder agreement?
A: Joinder agreements can be prepared by legal counsel or by the parties themselves. However, it is generally recommended to consult with a business attorney to ensure that the joinder agreement complies with the applicable laws and the governing documents of the entity .
Q: Is a joinder agreement the same as an operating agreement or an amendment to the operating agreement?
A: No, a joinder agreement is not the same as an operating agreement or an amendment. A joinder agreement is a stand-alone document that adheres to the terms of the existing operating agreement. Depending on what the operating agreement states, the joinder agreement may be incorporated into the operating agreement itself and attached as an addendum.
Q: What should be included in a joinder agreement?
A: A typical joinder agreement should include:
- The name of the entity;
- The names of the existing parties;
- The name of the new party;
- The terms of the addition, including the new party’s membership interest, contribution to the business, and any buyout provisions;
- The date the new party becomes a member; and
- Signatures of the existing parties and the new member.
Q: How is the joinder agreement governed?
A: The joinder agreement is governed by the terms of the existing operating agreement of the entity and by the laws of the jurisdiction in which the entity was formed.
