5 Legal Considerations for Startup Strategic Partnerships

A strategic partnership is an agreement between businesses to achieve a common goal. It can prove especially beneficial when the partnership involves businesses that share values and goals and pair well together. However, it is crucial to understand the legal considerations and implications of such agreements when pursuing an alliance with another business. This article will explain several essential legal considerations for startup founders regarding establishing a strategic partnership.

1. Understand What a Strategic Partnership Is

A strategic partnership is an agreement between two or more businesses. The objective of the partnership is to achieve a mutual purpose. It might involve:

• trading products or services;
• creating a new product or service;
• increasing marketing and advertising scope; and
• collaborating to streamline operations or improve understanding of the market.

The agreement is ‘strategic’ because it relates to pursuing a shared goal. For this reason, it is essential to understand your reasons for partnering with another business and whether you can achieve that goal through collaborating with them. You should ensure that your startup’s values and objectives align with those of the businesses you choose to partner with.

An example of a strategic partnership might involve a coffee shop startup collaborating with a business that lets office space. Both parties potentially share a market and can benefit from each other’s concepts. Another example might involve an online learning platform startup partnering with an IT business to ensure smooth service delivery.

2. Conduct Due Diligence

Due diligence is crucial for any significant business decision. It involves thorough research and preparation. If you decide to begin a strategic partnership, due diligence is a vital part of your pre-partnership process. You will carefully assess the other business, enabling you to determine whether the partnership is a sound business decision.

You should consider aspects such as:

• their financial background;
• reputation; and
• goals and objectives.

Seeking legal advice at this stage can help you ensure rigorous due diligence. A lawyer can independently review the other business and establish the potential risks and benefits of the partnership. Their advice can help you decide whether to partner.

3. Establish a Robust Agreement

As a strategic partnership is an agreement between two or more parties, it is critical to ensure you document this agreement in a legally binding contract. Your strategic partnership agreement should be clear and protect your startup’s interests.

When drafting the agreement, ensure that you discuss the terms of your arrangement with the other business, including:

• the purpose of the agreement;
• how you will share profit;
• each party’s roles and responsibilities;
• duration; and
• exit strategies.

Once you establish the key terms, document these in the agreement. This will form the legal basis of your relationship. It should also include a dispute resolution framework that either party can follow should they need to raise and resolve an issue. This can help reduce the risk of unnecessary and drawn-out conflicts.

4. Intellectual Property Ownership

Intellectual property is a crucial aspect of any strategic partnership. It encompasses vital elements of a business’s branding and operations, such as trade marks and patents. Before entering a partnership, it is critical to determine the ownership of existing intellectual property. Also, consider:

• how you will share ownership of any intellectual property that either of you create during the partnership; and
• what will happen to these assets once the partnership ends.

You should include terms on intellectual property ownership in your agreement.

5. Consider Confidentiality

When partnering with another business, you may need to share confidential information, potentially even trade secrets, another form of intellectual property. To protect the information that gives your startup a competitive advantage, you can include non-disclosure clauses within the partnership agreement or draft a separate non-disclosure agreement. A lawyer can advise you on the most suitable way to protect this information.

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Key Takeaways

Entering a strategic partnership with another business involves several legal considerations to ensure the collaboration operates smoothly. These considerations include the following:

• understanding what a strategic partnership is;
• conducting due diligence on the other party before entering the partnership;
• establishing a robust written agreement that stipulates the terms of the partnership;
• determining intellectual property ownership, including existing assets and those either party might create throughout the partnership; and
• protecting confidential information.

Moreover, new businesses face many legal challenges when establishing strategic partnerships. By formulating a business plan and considering the option of forming a limited liability company, you can mitigate risks and clarify objectives.

Legal advice can be especially beneficial when navigating the process of establishing successful partnerships. For example, a lawyer can:

• conduct due diligence on the other business;
• identify and mitigate potential risks;
• negotiate with the other party; and
• review drafts of your agreement or draft one for you.

If you require legal advice about strategic partnerships within your startup, our experienced startup lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.

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