Collaboration between businesses – what are your options?

When two or more individuals or existing businesses decide they want to work together, the structure of their business relationship is key, and can take different forms. The most suitable structure will depend on factors such as the intended length of the collaboration and the hierarchy of the parties’ roles.

How long or permanent will the collaboration be?

Long-term: what are the options?

If the collaboration involves the entirety of each party’s business, and is intended to be a permanent arrangement, a formal merger or acquisition of one party by the other may be the best option.  However, it is also the most drastic option and each party will lose all independence from the other (subject to any expressly agreed terms to the contrary). 

A partnership, governed by a formal partnership agreement and the Partnership Act 1890, could be another option, but the nature of a partnership often makes this less appealing to many.  A partnership cannot enter into contracts in its own name, and any liability, including taxation of the partnership business, will ultimately fall to the partners themselves. 

A common solution is to create a new company owned by the separate parties, by way of a joint venture (JV).  Each of the JV parties contributes assets, expertise and/ or cash to the JV company which then trades the collaborated business. This may be the whole of a party’s business, or just a particular large project.  As a private company limited by shares, the JV company is completely separate from the JV parties and their own assets and liabilities.  A joint venture agreement (which is, essentially, just a shareholders’ agreement) governs all aspects of the relationship between the JV parties, including what happens if one party wants to exit the JV. 

Short-term: what are the options? 

For shorter, or one-off, collaborations on a particular project, a form of collaboration agreement (also often referred to as a ‘contractual joint venture’) may be more appropriate.  The parties agree a form of contract which sets out all the agreed terms between them.  This will include matters such as operational roles and responsibilities, and ownership of any assets, including intellectual property created during the course of the collaboration.  With an arrangement of this nature, each party can still act independently of the other on other projects.

Is there a hierarchy of roles between the parties? 

If there is a principal party in the proposed collaboration, with the other party providing particular services for or on behalf of the principal, a contractual agency or distribution agreement is likely to be the most appropriate structure.  Remember, however, that other rules and regulations may also apply, in particular competition law matters and, for agency arrangements relating to the sale of goods, under the Commercial Agents Regulations 1993.

Ending a collaborative arrangement 

There will be different reasons why a collaboration between parties will come to an end.  It may be that the particular project has ended, or that the parties have fallen out, and wish to terminate the arrangement.

Where the parties have undergone a full merger or acquisition, a separation is more difficult. It may require either a sale of all or part of the merged business or (if the businesses are, by then, inextricably linked) a buyout of one or more of the individuals concerned.  The same may apply to a joint venture arrangement, although those entered into for a specific project will usually incorporate terms regarding their dissolution in the joint venture agreement. 

Collaborations which are dependent on an ongoing contract between the two parties (such as one of the hierarchical arrangements noted above or a contractual JV or partnership) would normally also include terms dealing with the termination of the collaboration. In order to manage any later disputes, it is important that such terms are not omitted from the original drafting. 

If you would like to know more about the different options available on a business collaboration, and which structure may be most appropriate for you, please contact our corporate team.