1. Delegating control and responsibility through a Business Management Agreement
Delegation under a Business Management Agreement reshapes who effectively runs the business, even if ownership never changes.
Once management authority is transferred, operational decisions, regulatory exposure, and third-party relationships are no longer controlled internally.
Without disciplined allocation, authority and liability drift apart.
Distinguishing management authority from ownership rights
A Business Management Agreement must clearly separate ownership from control. While equity holders retain ultimate ownership, the managing party often exercises day-to-day authority that creates real-world exposure. Failure to define this boundary leads to disputes over responsibility when losses occur.
Risk of implied authority and uncontrolled discretion
Broad management mandates invite implied authority. Vendors, employees, and regulators rely on conduct, not internal intent. The agreement must limit discretion explicitly to prevent unintended commitments and liability expansion.
2. Scope of services and decision-making power in a Business Management Agreement
Disputes frequently arise when the scope of management services under a Business Management Agreement is described functionally rather than decisively.
Listing tasks without defining decision rights leaves room for conflict.
Control must be intentional, not assumed.
Operational execution versus strategic decision authority
The agreement should distinguish between operational execution and strategic control. Budget approval, hiring authority, contract execution, and policy setting must be allocated with precision to avoid overlapping control.
Approval thresholds and reserved matters
Reserved matters protect owners from unintended loss of control. A Business Management Agreement should require owner approval for high-risk actions such as major expenditures, financing arrangements, or asset disposals.
3. Compensation structure and incentives in a Business Management Agreement
Compensation disputes often reveal the weakest points in a Business Management Agreement, particularly when incentives reward activity rather than outcomes.
Poorly aligned compensation structures encourage risk-taking without accountability.
Incentives shape behavior.
Fixed fees versus performance-based compensation
Fixed management fees provide stability but reduce accountability. Performance-based components introduce alignment but require objective metrics. The agreement must balance predictability with measurable performance standards.
Risk of incentive misalignment and manipulation
Vague performance metrics invite manipulation. A Business Management Agreement must define calculation methods, audit rights, and adjustment mechanisms to preserve integrity.
4. Liability allocation and regulatory exposure under a Business Management Agreement
Regulatory and third-party exposure does not disappear simply because management is outsourced under a Business Management Agreement.
Authorities and claimants pursue control, not contract labels.
Liability allocation must reflect this reality.
Third-party claims and operational responsibility
The agreement should address how liability is allocated when claims arise from management decisions. Indemnification without control is ineffective. Responsibility must track authority.
Regulatory compliance and enforcement risk
When regulated activities are involved, the agreement must specify who controls compliance, reporting, and remediation. Ambiguity invites enforcement against the party with public visibility rather than contractual protection.
5. Termination, transition, and continuity in a Business Management Agreement
The greatest vulnerability in a Business Management Agreement often appears at exit, when operational dependency collides with contractual termination rights.
Ending the relationship without transition planning magnifies risk.
Exit must be operationally feasible.
Termination triggers and notice mechanics
Termination rights should be tied to objective failures such as performance breaches or compliance violations. Unrealistic notice or cure periods weaken leverage and prolong exposure.
Transition management and handover obligations
A Business Management Agreement should require structured handover of records, systems, and personnel coordination. Without transition obligations, termination disrupts operations rather than restores control.
6. Why Clients Choose SJKP LLP for Business Management Agreement
Clients choose SJKP LLP because Business Management Agreements demand disciplined control over authority, incentives, and exit risk. We approach these agreements as governance instruments designed to withstand operational stress, regulatory scrutiny, and performance volatility. By structuring Business Management Agreements that align decision-making power with accountability, we help clients preserve ownership control while benefiting from delegated management expertise.
05 Jan, 2026
