Legal advice on cooperation agreements and joint ventures
A problem shared is a problem halved; joy shared is joy doubled. If only it were that simple! Nevertheless, partnerships can be worthwhile and successful – provided the agreements and contracts are unambiguous, clear, up to date and practical. So it’s good to have someone at the table who has already set up many partnerships, someone who knows the terrain inside out and can guide you through every stage.
Cooperation agreements
The term ‘partnership’ is used when several independent companies work together to achieve a common goal – without relinquishing their legal independence. Co-operation agreements are entered into when a company does not undertake a specific, clearly defined part of the value chain itself, but instead has it carried out by its co-operation partner. The spectrum ranges from research contracts through to production and sales partnerships. Unlike pure service contracts, the partner is usually involved in the commercial success of the product, or the partner also benefits from the other party’s services.
The key elements of cooperation agreements are therefore a clear definition of the common objective, a clear and precise description of the services to be provided by the respective cooperation partners, and a well-thought-out remuneration arrangement. These are primarily financial matters, but in practice they are often not set out clearly and precisely in the contract. Or, whilst they may be set out in the contract, they are handled quite differently in practice.
This then leads to problems when a dispute arises and an independent third party – a court or an arbitration tribunal – has to decide what is actually deemed to have been agreed. If the cooperation agreement contains unclear provisions or if actual changes have not been formally incorporated into the contract, this can very quickly lead to difficult issues of evidence and lost legal cases.
Joint venture
A specific form of cooperation is the so-called „joint venture“. In this arrangement, two independent companies establish a third, legally independent company and operate it jointly. Unlike a simple equity investment, the shareholders also contribute expertise, goods and/or services to the joint venture, which, when combined, are intended to produce a standalone product within the joint venture.
The advantage of a joint venture lies in the legal independence of the joint venture company. If the product fails, it is only the joint venture company that fails, not the participating partners. Furthermore, the joint product can be marketed under its own name without affecting the partners’ own products.
The cooperation partners may be remunerated in the form of dividends which they receive as shareholders of the joint venture. Alternatively, the contributions made to the joint venture may be remunerated through corresponding ancillary (service) contracts. This allows for a flexible and balanced structure for the collaboration.
When structuring joint ventures – just as with cooperation agreements – care must be taken to ensure a clear description of the services to be provided and the remuneration model. In addition, there is the matter of the joint venture’s corporate structure. In this regard, particular attention must be paid to carefully balancing the power and influence of the partners in order to avoid disputes.