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No person or business has to be an island: top legal issues for business collaborations

Many of us enjoy living and working in the south west.  The challenges of working in a peripheral part of an island off mainland Europe are well known. Seizing business opportunities requires alert antennae and a prudent investment approach.

John Donne’s classic poem took an expansive view.  Joining forces is one way to increase weight and opportunities.  There are masses of things to think about around collaborations before reaching out to a new business partner.  These involve culture, size of the prize, impact on existing business and reputation, to name a few.  In our experience, collaborations that look at the opportunity through the legal lens start out on a stronger footing.  No two collaborations are the same: however, a list of top legal issues usually includes:

• making sure your own house is in order before approaching potential partners
• making sure that you carry out your own due diligence on potential partners. Financial standing, quality of management and reputational risk all have a bearing
• seeking legal and tax advice on the structure that is to be used for the collaboration. It is crucial this is dealt with at an early stage
• being very clear on roles expected of each partner. Paperwork, meetings, summaries of actions and responsibility for next steps are all vital to avoid false assumptions, wasted time/energy and relationship breakdown
• putting into place appropriate confidentiality arrangements before disclosing any sensitive information
• understanding very clearly the assets that are going to be used in the collaboration, whether yours or someone else’s. Ensure your new partners have the right to be able to use the assets in the way that you need them to. Particularly relevant will be the use of any intellectual property
• ensuring that appropriate governance arrangements are in place for a “board”. Make sure that those persons appointed to that board have the appropriate authority from their partners
• making sure that sufficient personnel is freed up to be able to implement the collaboration in a way that the partners wish… and also in the way that the existing contracts of employment allow
• considering the duration of the collaboration and what happens on termination. Who owns which assets, are restrictive covenants required, what post termination obligations may be required to support customers…and so on
• being very clear on how the reward for each of the partners is calculated and distributed.

Many of the building blocks to a successful collaboration will be laid down during early meetings.  As partners build the right chemistry, commitments to each other will grow in size so that the relationship becomes sufficiently strong to deliver the larger prize.  Legal documentation to record that important relationship, the expectations, journey and reward will be critical.  Legal input at an early stage will help steer a strategy that avoids common pitfalls and ensures that the early nuances can be properly captured.

Gavin Poole is a partner in the corporate team at Stephens Scown. If you would like to talk about this article or any other corporate law matter then please do contact Gavin on 01872 265100, or by email [email protected].