Collaborating with other businesses can present opportunities that would not otherwise be open to you if you were simply ‘going it alone’. Your collaboration can take one of several different legal forms and a contractual business collaboration is appropriate if you’re looking to collaborate with another business and pool your resources, but you don’t want to set up a separate legal entity. If you intend to enter into a contractual business collaboration, it’s important to use a proper legal contract. This guide provides guidance about the key commercial terms to include in your business collaboration agreement, alongside a template agreement that is customisable to your collaboration.
Contents
- Collaboration agreement
- Commercial terms to include in a collaboration agreement
- What terms and conditions should I include in my business collaboration agreement?
- What objectives should I set out in my business collaboration agreement?
- How can I make it clear that my business collaboration is not intended to be a partnership?
- What terms should I include about project management and coordination?
- How should a business collaboration agreement deal with my company’s contribution?
- How should the profits and losses of the collaborations be split between the parties?
- Should my business collaboration be an exclusive arrangement?
- How can I terminate my business collaboration agreement?
- What restrictive covenants should I include in my business collaboration agreement to protect my business following termination?
- How can I protect my business from liability in a business collaboration agreement?
- How will my confidential information and trade secrets be protected in my business collaboration agreement?
- How will my intellectual property be protected in my business collaboration agreement?
- How should my business collaboration agreement deal with data protection?
Collaboration agreement
What is a business collaboration agreement?
It’s an agreement between two or more businesses that will be collaborating on a commercial project. The agreement sets out the key commercial terms of the collaboration, including each party’s obligations and responsibilities. It might also be referred to as a cooperation agreement, a contractual joint venture agreement, a business collaboration agreement or a project collaboration agreement.
Do I need a collaboration agreement?
If you will be collaborating with another business on a project, then you should always use a written collaboration agreement to formalise your collaboration, including your respective obligations and responsibilities. These include who will contribute finances, resources and/or intellectual property to the collaboration and how any profits and liabilities will be split.
If the key commercial terms of your collaboration are not clear from the start, there will be a higher risk of disputes if your business collaboration is unsuccessful. You could also face increased liability if you do not make it clear that your collaboration is not intended to be a partnership.
How do I use the business collaboration agreement template?
- Select the business collaboration agreement template
- Fill in the questionnaire to customise the agreement to your collaboration
- Download your draft agreement
- Attach the relevant schedules to the agreement (you’ll find guidance about this in the questionnaire)
- Arrange for the agreement to be signed and dated by both parties
Note that before entering into a business collaboration agreement, it is recommended that you and the other party sign both an NDA and a non-binding letter of intent. For further guidance, see our Q&A on Business collaboration agreements.
Commercial terms to include in a collaboration agreement
What terms and conditions should I include in my business collaboration agreement?
Business collaboration agreements contain the scope and terms of your collaboration.
The specific terms that you need to include will depend on the nature of your collaboration, the activities involved and the bargaining power of the parties. However, some of the key terms you should consider including are described below and examples are included in our template business collaboration agreement. See our Q&A for more detailed guidance about business collaboration agreements.
Bear in mind that if you are entering into anything other than a very straightforward business collaboration, you should seek expert legal advice on the terms of your agreement. For access to a specialist lawyer in a few simple steps, you can use our Ask a Lawyer service.
What objectives should I set out in my business collaboration agreement?
Your business collaboration agreement should clearly set out the objectives for your project collaboration (eg to produce a joint marketing campaign to promote a new service). It is advisable to set out key goals for the collaboration so that the focus of the parties is clear, but you may want to provide some scope for flexibility to allow you to adapt and respond to changing requirements or developments as they arise.
How can I make it clear that my business collaboration is not intended to be a partnership?
You should clearly define the relationship between the parties to the collaboration in your agreement to avoid the inference that it is a general partnership, as this could have significant legal and tax implications, including unlimited liability for the liabilities of the collaboration.
To avoid the implication of a partnership, you should not only include a clause in your business collaboration agreement specifically emphasising that it is not intended to be one, but you should also ensure that the parties’ business operations remain entirely separate from one other. Any committee set up to coordinate the project’s activities must simply coordinate the project and have no say in how the parties’ businesses are run (see below for further guidance). For further guidance about partnerships, see our Partnerships guide.
What terms should I include about project management and coordination?
Your agreement should clearly set out what the respective parties’ obligations and responsibilities are for the project. These will be very much case specific, but should include who will be taking responsibility for project management and coordination and who will deal with administration and reporting.
You may wish to appoint a committee to take responsibility for coordinating the way in which your businesses work together on the project and your agreement should set out the purpose of the committee, how it will be run, the scope of its authority and who will be allocated to it. It is important to ensure that this committee does not have the ability to make executive decisions over the collaboration, otherwise there is a risk that your collaboration could be viewed as an unlimited partnership (see above).
How should a business collaboration agreement deal with my company’s contribution?
What the parties contribute to a business collaboration will be very much case specific and could include finance, facilities, equipment, intellectual property, technology or personnel.
How your contribution, and that of the other party or parties, will be valued and rewarded in the agreement will be a question of commercial negotiation between you and the other parties.
How should the profits and losses of the collaborations be split between the parties?
How the profits and losses of the collaboration will be split between the parties is a matter of commercial negotiation between the parties, and will be very much case specific.
Whilst you may agree a more complex arrangement, in many cases it may be appropriate for each party to bear its own profits and losses separately.
In some cases, if you jointly profit from your collaboration, you may agree to split the profits either equally or to reflect your respective contributions. If you do choose to share the profits of your collaboration, it is important that you agree to deduct your respective expenses from the profits as sharing net profits can indicate that a partnership exists between you. Our template agreement allows you to set out how profits, costs and expenses will be dealt with.
In some instances, there may be no profits or losses at all; for example if you are collaborating to bid for a contract.
If any assets are brought into existence by the business collaboration, the contract should clearly set out who will own these.
Should my business collaboration be an exclusive arrangement?
It is likely that you will want your collaboration to be an exclusive arrangement, ie so that neither you or the other business can work with competitors for a set period of time. For example, if you are joining forces to bid on a tender, you may include a clause that neither party will, either on its own behalf or in conjunction with another business, make any other response to the tender.
Bear in mind that if you are entering into an exclusive arrangement, you will need to ensure that it is reasonable in terms of length and scope. Unreasonable exclusivity clauses (eg which provide for a long period of exclusivity) could be anti-competitive, and you will therefore need to consider potential competition law issues (see our Q&A for further guidance).
How can I terminate my business collaboration agreement?
Termination provisions are likely to be one of the most difficult aspects of your contractual joint venture to negotiate and you should consider the implications of them carefully.
The duration of your business collaboration agreement will depend on the nature of your collaboration and your businesses, but most collaborations of this type are fairly short-term. For example, if you are collaborating to bid for a contract, your agreement is likely to last until your bid has either been accepted or rejected. On the other hand, if your collaboration is for the purpose of carrying out a project, your agreement will typically terminate when the project has finished.
Although it is unusual for businesses to be able to leave a business collaboration agreement before it runs its course, your agreement should specify any scenarios in which either party may terminate, including what activities will be considered a breach of contract permitting the other party to terminate.
Your business collaboration agreement should also set out what the rights of the parties will be on termination (eg any restrictive covenants that have been agreed, IP rights and ongoing obligations of confidentiality).
What restrictive covenants should I include in my business collaboration agreement to protect my business following termination?
You should consider including post-termination restrictive covenants in your business collaboration agreement; for example, that neither party will solicit any key staff or customers of the other party, or compete with the business collaboration. These will typically apply during the course of your agreement and could also apply for a fixed period after termination.
Bear in mind that restrictive covenants will only be upheld if they are reasonable in the circumstances and they cannot be enforced if they amount to an unjustified restraint of trade. This will be the case if the clauses go further than is reasonably necessary to protect your legitimate business interests (eg because they are too wide or last for too long a period).
Our template collaboration agreement allows you to include restrictive covenants if you wish to do so. If you will be including these types of restrictions in your business collaboration agreement, you may need to consider competition law issues (see our Q&A for further information).
For a more detailed discussion about restrictive covenants see Confidentiality and restrictive covenants in employment contracts.
How can I protect my business from liability in a business collaboration agreement?
It is typical for business collaboration agreements to provide that each party is responsible for performing its own obligations and will be liable for its own actions during the course of the collaboration. However, you are both likely to want to exclude or limit your liability to the other party if it suffers any loss of profits or consequential loss because either of you have failed to comply with your obligations under the contract or are negligent in how you carry them out, otherwise there will be no cap on your liability.
To be legally effective, these terms must be reasonable and very clear about what they cover. Bear in mind that you cannot exclude your liability for death or personal injury resulting from your negligence.
If your collaboration leads to contracts with third parties (eg customers), those third party contracts are likely to state that both you and your collaborator are jointly liable for any breaches of that contract. In such cases, you will need to consider how liability to those third parties will be apportioned. You should include in your business collaboration agreement cross-indemnities whereby each party agrees to indemnify the other if they suffer loss because of any claim by a third party due to the fault of the other party.
You should also consider carefully the provisions of any third party contracts that you enter into as a result of the business collaboration; for example these should contain clear provisions about how proceedings should be brought in the event of any dispute.
Equally, if you will be using the intellectual property of the other party during the collaboration, your agreement should include cross-indemnities in the event that a third party claims that its intellectual property rights have been infringed by that use.
How will my confidential information and trade secrets be protected in my business collaboration agreement?
You should always ask the other party to a business collaboration to sign a Non-Disclosure Agreement (NDA) before disclosing any information about your business, and they may well want you to sign one.
See our guide on NDAs for more information and template NDAs you can use.
It’s also important to include confidentiality provisions in your business collaboration agreement to prohibit the misuse or disclosure of any sensitive information that is shared during your business collaboration. By including such a provision, duties of confidentiality will apply both during and after the collaboration.
Bear in mind that sharing confidential or commercial sensitive information with another business, such as in relation to pricing, can raise competition law issues.
How will my intellectual property be protected in my business collaboration agreement?
It is possible that you will be bringing some of your own, already established, intellectual property to your business collaboration (for example if you are doing a co-marketing campaign, you may be bringing your own trademarked branding to the project).
It is typical for your agreement to state that each party will retain ownership of its intellectual property, and provide the other party with a licence to use it if so required for the purposes of the collaboration. In doing so, you should ensure that your collaboration does not, or does not have the potential to, restrict competition in the market by, for example, fixing purchasing or selling prices; see Intellectual property issues when entering into a business collaboration for more information.
How should my business collaboration agreement deal with data protection?
If your collaboration will involve the transfer of any personal data (eg of your staff or customers), both you and the business with whom you are collaborating will have data protection obligations and you may also need a data sharing agreement or data processing agreement in place.
It is good practice to include a clause in your agreement confirming that any personal data shared between your businesses will be done in accordance with data protection law at all times.
For more information about your data protection obligations when you are sharing personal data, see Key obligations when sharing personal data.
The content in this article is up to date at the date of publishing. The information provided is intended only for information purposes, and is not for the purpose of providing legal advice. Sparqa Legal’s Terms of Use apply.
Before joining Sparqa Legal as a Senior Legal Editor in 2017, Frankie spent five years training and practising as a corporate disputes and investigations lawyer at leading international law firm Hogan Lovells. As legal insights lead, Frankie regularly contributes to Sparqa Legal’s blog, writing content across employment law, data protection, disputes and more.