Joint Ventures & Collaboration Agreements: What businesses should agree on before they start

Working alongside another business can open up contracts, markets, and capabilities that would take years to build alone. The trade-off is shared control and it is also usually the point where arrangements break down.

The disputes we see usually happen because nobody addressed the difficult questions while everyone was still on good terms. Below, we outline some available structures, the key terms to establish early on, and the consequences of relying on goodwill instead.

What is a joint venture?

Joint ventures are commercial arrangements in which two or more businesses work toward a defined objective, sharing resources, risk, and reward, while remaining independent in all other areas. Unlike a merger or acquisition, nothing changes hands permanently.Nothing merges permanently. 

Such arrangements can appear across all sectors, for example:

• Property: a landowner provides the site while a developer funds construction.
• Manufacturing: one party contributes technical expertise, the other a distribution network.
• Professional services: two firms collaborate on contracts beyond the reach of either alone.
• Technology: intellectual property is combined with an existing customer base.

What purpose does a collaboration agreement serve?

A collaboration agreement is a written contract that governs how parties work together on a project without forming a new entity. It outlines responsibilities, funding, ownership of outputs, and the duration of the arrangement.

Such contracts are suitable for narrower or shorter projects (e.g. research and development, co-marketing, joint tenders, or a trial run before a longer commitment). Nothing needs to be registered at Companies House, making setup quick and relatively inexpensive.

However, the informality can be a double-edged sword. If roles are unclear and profits are split informally, participants risk being treated as partners under English law principles, which brings joint and several liability for debts no one intended to bear.

Which structures are available under English Law

Three primary options dominate:

1. a purely contractual relationship;
2. a jointly owned company;
3. or a partnership vehicle such as an LLP. 

The choice should depend on how closely the businesses need to integrate, the amount of capital involved, and how long the collaboration is expected to last.

Contractual arrangements

Both parties remain entirely separate, with the relationship governed entirely by the contract. These are usually limited in scope, with defined timeframes and no need for a new balance sheet.

Teaming agreements fall into this category, especially when the goal is a single tender rather than an ongoing enterprise.

Corporate ventures

A new limited company – often called a special purpose vehicle (SPV) – is incorporated, with each participant holding shares. Governance is managed through the articles of association and a shareholders’ agreement.

Liability is generally limited to the company, which is attractive for ventures with financial risk. Directors’ duties under the Companies Act 2006, statutory filings, and annual accounts all apply.

Partnerships and LLPs

Trading as partners is the third option. General partnerships expose members personally, so most businesses opt for an LLP formed under the Limited Liability Partnerships Act 2000.

LLPs offer protection similar to a company, with flexible profit-sharing and tax transparency. Professional practices and property investors often choose this structure for those very reasons.

What should a collaboration agreement cover?

No matter which structure you choose, your documentation must answer one key question: what happens when things stop going well? Success rarely causes disputes. Nearly every clause below exists because something previously went wrong for someone else.

Ownership and contributions

Clearly document what each party contributes and what they receive in return. These may include cash, land, staff time, equipment, data, and know-how, all of which should be identified and valued.

• Initial capital and whether further investment may be required.
• Assets or licenses provided, and on what terms.
• Percentage interests or shareholdings, and pre-emption rights on any transfer.

Management responsibilities

Define who handles daily operations and which decisions require unanimous approval. Reserved matters often include borrowing, senior appointments, changes to the business plan, issuing equity, and initiating litigation.

Deadlock is a real risk in a 50:50 split, so include a mechanism for breaking it before it becomes necessary.

Profit sharing and funding

Profit distribution should be clearly defined in figures. In other words, include how surpluses are calculated, when payments are made, whether reserves are retained for reinvestment, and what happens if additional funds are needed mid-project.

Tax treatment varies significantly between structures, and HMRC will look at the substance rather than the labels. You should consult your accountant alongside your legal advisor.

Liability and risk allocation

Determine who bears which risks and reflect that in warranties, indemnities, insurance obligations, and caps on financial responsibility. Third-party claims, regulatory breaches, and losses caused by one party’s default should be addressed explicitly.

Protecting intellectual property

Default rules rarely align with commercial expectations. Clearly distinguish between background IP that each party already owns and anything created during the project. Specify who owns the results and who may license them afterwards.

Confidentiality provisions should survive termination. If sensitive information is exchanged before terms are finalised, a non-disclosure agreement protects you during negotiations.

Restrictions, exclusivity, and competition law

Non-compete clauses, exclusive territories, and customer allocations require careful drafting. On occasion, agreements between businesses that otherwise compete can violate certain competition laws. Consequences may include voided terms, financial penalties from the Competition and Markets Authority, and reputational damage.

Particular caution is needed when sharing pricing or commercially sensitive data with a competitor.

Exit provisions

Plan for an exit from the start. Documentation should outline how notice is given, how a departing party’s stake is valued, whether remaining parties can buy it, and what happens to assets, staff, and contracts during wind-down.

Drag-along and tag-along rights, together with restrictions on transferring interests to outsiders, prevent unwanted business partners.

Dispute resolution

Escalation clauses provide a path back from conflict. Many contracts require senior representatives to meet first, followed by mediation, before court proceedings are allowed.

When a foreign party is involved, governing law and jurisdiction are critical, as enforcement becomes much harder without them.

What are the risks of proceeding without a written agreement?

While verbal agreements can be binding, they rarely offer protection. Without proper documentation, the following problems often arise:

• Unintended partnership status, exposing personal assets to trading debts.
• Default IP ownership goes to the creator rather than the party funding the work.
• Profit disputes arise due to lack of defined calculation methods.
• No clean exit path, trapping capital in a stalled venture.
• Confidential information may be used freely without restrictions.

Commercial litigation of this nature is costly, slow, and damaging to relationships that might have otherwise been salvaged. Proper drafting at the outset costs a fraction of resolving disputes later.

Speak to our corporate and commercial solicitors  

GoodLaw Solicitors LLP provides corporate and commercial legal advice to business owners, directors, founders, and SMEs on collaborative ventures of all sizes.

Call your nearest office or send us a message to discuss your plans:

• SUSSEX: 01273 956 270
• SURREY: 01252 471 211
• LONDON: 020 4524 9436

Frequently Asked Questions