Focus on Commercial: What is a business collaboration agreement?

Posted on May 5, 2022
Posted by Frankie Mundy

business collaboration agreement

A business collaboration agreement is an agreement between two or more businesses that will be working together on a commercial project. It sets out the scope of their cooperation and the key terms that have been agreed, including the parties’ obligations and responsibilities. It might also be referred to as a cooperation agreement, a contractual joint venture or a project collaboration agreement. 

 

Business collaborations

Collaborating with other businesses can open up opportunities for your business that would not otherwise be open to you if you were simply ‘going it alone’. The various potential benefits to your business of collaborating with others include: 

 

  1. Being able to access new skills you do not currently have in-house, thereby helping you to develop products or services you would not have been able to develop on your own; 
  2. Being able to share costs and resources (eg equipment, facilities or staff) as well as expertise; 
  3. Gaining access to a broader network, including new customers, in a cost-effective manner without necessarily having to carry out further business development; 
  4. Increasing customers’ awareness of, and confidence in, your business through association with a well respected brand; 
  5. Developing and growing your business through exposure to new ideas and strategies; and
  6. Generating valuable intellectual property (IP), while also gaining access to another business’s IP without having to create it on your own or having to buy it from third parties. 

 

Ultimately, collaborating with other businesses can increase your ability to compete in certain markets, which you may not have had access to on your own. 

 

Contractual business collaborations

A contractual business collaboration is a common form of contract between two parties who are looking to collaborate on a commercial project and pool their resources, but who do not wish to create a separate legal entity (such as a joint venture company or a limited liability partnership (LLP)). 

The businesses will typically pool some of their resources to work towards a shared goal or common objective. For example businesses might collaborate to produce a marketing campaign, co-create a new product, carry out research and development or bid for a contract. The collaboration will usually be short-term or for a defined period of time and will be of restricted scope, with a well defined purpose. 

 

Why a business collaboration agreement is important

You should always use a written agreement when you are entering into a business collaboration. This will help you to formalise your collaboration, including your respective obligations and responsibilities. For example, 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 collaboration is unsuccessful. 

Read this blog for further guidance about what terms to include in your collaboration agreement.

 

 

Other documentation you’ll need for a contractual business collaboration

If you’re entering into a contractual business collaboration, it’s recommended that you sign the following documentation prior to entering into your business collaboration agreement:

 

1. A Non-Disclosure Agreement (NDA)

It’s very important to put safeguards in place to protect your confidential information and intellectual property before you enter into negotiations with someone outside your business. As it’s likely that both you and the other party will be disclosing information to each other, you should consider entering into a mutual NDA first. This is an agreement signed by both parties whereby you are both placed under a legal obligation not to disclose any information referred to in the NDA which you receive. 

It’s also wise to disclose as little confidential information as possible (ie only that which is strictly necessary for the business collaboration).

See our Q&A on Intellectual property issues when entering into a business collaboration for further guidance, and for a template mutual NDA, see our mutual NDA

 

2. A Letter of intent (or Heads of Terms)

Before incurring the time and cost of detailed negotiations, it’s recommended that you sign a letter of intent which sets out the key commercial points that will form the basis of your negotiations. This will give both parties confidence that a deal is possible and will set out a timeframe for reaching a full, legally binding agreement.

Read our earlier blogs in this series for further guidance about what a letter of intent is and how to create one. You can also use our template to create your own. 

 

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.