What is a cooperation agreement?
The word is used and understood very differently in practice, but often it is an agreement which aims to create a commercial advantage for trading parties.
What distinguishes the cooperation agreement from ordinary sales is that the agreement is typically not entered into between a company and its regular customers. In addition, there is a greater focus on lasting cooperation rather than a single action.
The important headlines
When you have to enter into a good collaboration agreement, it is important to make the right considerations. Your considerations can basically be divided into the following headings:
- Commercial considerations
- Legal considerations
In the following, we take a closer look at the individual headings and what is particularly important in this connection. You should be aware that the list is general. If there are conditions in your personal situation that do not agree with or are mentioned in the list, you should correct them yourself or seek professional advice.
It is a good idea to make the commercial considerations first. If you come to the conclusion that the collaboration is bad business, there is no need to spend time and resources considering the legal rules of the game.
Commercial considerations
The commercial considerations are about being a skilled merchant. All your commercial considerations must lead towards answering a single question: "Is the collaboration good business for me?"
You can consider the following, among other things:
What is my "business case"?
The absolutely most important thing in the collaboration is that it supports a good business. You should consider what benefit you want from the collaboration and you must be able to clearly answer what your benefit from the collaboration should be - the more measurable, the better.
A good rule is that the party that delivers the most work, runs it greatest risk, and/or invests the most value or contributes the most assets to the collaboration, should basically have the largest part of the potential gain. Profit can be money, exposure to new customers, etc.
If your regular core business without the collaboration has better earnings measured in relation to effort and risk than the collaboration, you must consider very carefully whether the collaboration is actually more profitable than growing or maintaining the core business without the collaboration.
Is my business partner trustworthy?
You should ensure as much as possible against entering into cooperation with fraudsters, untrustworthy or other traders with a bad history. Look up in the CVR register if the owner has 15 bankruptcies behind him, search on Google to see if he has a bad reputation or similar.
However, always remember to be critical of the source - there is a difference between an angry comment on Facebook and a sanction from a public authority, which you can find via Google on the authority's own website.
What is the balance of power?
The terms of the collaboration often depend on the balance of power. How much does collaboration take up in your company compared to how much does collaboration take up in your partner's company? This has an impact on how big benefits you can realistically expect to negotiate for.
What is your next best alternative?
An old rule of thumb for all negotiations is to never go into a negotiation without knowing what the next best alternative is. If you know what your alternative is, you also know how much you can give before a collaboration with this particular partner is no longer an advantage for you.
If you have difficulty assessing what is "best", you can set up list the things that are important to you, give each point a score between 1 - 5 and then consider the overall result. This can be done both if you have to choose between different potential business partners, or if you have to weigh the advantages and disadvantages of a single business partner compared to not entering into any cooperation.
You can, among other things, emphasize delivery times, prices, whether they match within a few days or are silent for several weeks at a time, the quality of the service, whether the company is completely newly founded or has existed for many years, etc.
Legal considerations
The legal considerations are about safe, clear and firm guidelines for the rights and obligations of both parties in the event that a disagreement arises that cannot be resolved by the parties simply talking about the problem together. But what should be included in such an agreement?
Overall, there are a number of headlines that often repeat themselves. First, I will list some general, indicative headings, then I will go a little more in depth with individual selected headings.
- Purpose of the agreement
- Decision procedure / method
- Loyalty obligation between the parties
- Delivery obligations
- Financial obligations
- Employees / subcontractors / consultants
- Breach (breach of contract)
- Compensation and liability
- Termination of cooperation
- Insurance
- Confidentiality
- Choice of law and venue
It would often be a good idea to attach any project plans or similar as an appendix to the cooperation agreement. It contributes to the legal provisions being interpreted in accordance with the parties' description of the actual content of the collaboration.
Payment conditions
If there is a flow of money as part of the collaboration, it is important that payments, deadlines, consequences in case of infringement, etc. is described in detail in the agreement - regardless of whether it is a payment from one business partner to another, or a mutual distribution of payments from a third party.
Otherwise, there is a risk that one party will impartially act as a bank for the other by undertaking an unintended liquidity burden, or that a party is exposed to a greater risk or interest burden than intended.
Regulation of liability
The parties can advantageously decide on their liability towards each other. The same applies to the mutual distribution of responsibility towards third parties. It is important to remember that the cooperation agreement is only binding on the parties. Do you want to e.g. to regulate liability for third parties' use of a prototype that the parties have developed together, this must also be agreed with third parties.
Different forms of liability regulation include, among other things, disclaimers for indirect or consequential damages, limitation of liability to a certain maximum amount, a force majeure clause, distribution of liability among themselves if a third party obtains a justified claim against one of the business partners, etc.
Intellectual property rights
Where the collaboration involves the development of something valuable, it is always relevant to describe which rights the parties have. This should be described and regulated in the collaboration agreement, or in a separate agreement on this.
- Should each party retain full rights to existing rights that the party brings into the collaboration, so that each party retains its own original rights, or should they be "swallowed up" by the collaboration and distributed in the same way as the jointly developed rights?
- Should the parties each own an equal share?
- Should one party own, but the other have a right of use/license?
- What restrictions apply in relation to transferring rights to third parties?
- How common rights are enforced and what applies in relation to protection (e.g. patent application) of common rights?
Pay particular attention to whether the parties themselves have the full right to dispose of the rights. An example is photographs. The photographer has the copyright cf. Section 70 of the Copyright Act, and therefore the parties cannot agree that all images used in their joint marketing must belong to one party, unless they also have an agreement with the photographer to this effect. Ignoring the rights of third parties may result in claims for compensation or compensation, as well as a possible ban on continued use.
If you have questions or need sparring in connection with entering into cooperation agreements, you are welcome to contact me either as a coach here at Startup Central, or directly via my office if you need legal assistance.
If you need non-binding sparring , you can see my coach page.
If you need legal assistance, including help with drafting a concrete contract, you can contact me via my office here.
This blog has been translated by Startup Central.