The birth a of commercial relationship
This is part one of a three part series called 'The trilogy: births, marriages and deaths of a commercial relationship' in which we guide you through the key stages of a commercial relationship and how to be best prepared for the challenges each stage can present.
For the purpose of trilogy we have identified these three key stages as 'birth', 'marriage' and 'death'. In this first article of the series we will look at the things you need to consider at the 'birth' of your new commercial relationship, before tying the knot.
1. Choosing the partner
When choosing a partner to enter into a commercial relationship with, as in life, it is imperative that you make an informed decision and are sure that it is the right step. Undertaking some simple due diligence can help you eliminate unsuitable partners and highlight areas of weakness or risk, so you can take steps to best protect your business if the relationship becomes official. This is by no means an exhaustive list, but here are some of the key questions you really should get the answers to before negotiations start:
- Have you worked with this company before?
- What is the company’s reputation in the industry?
- What benefits will you gain from working with this company but equally what challenges may it pose?
- Is the other company UK based or international?
The answers to these questions will shape how you choose to proceed.
2. Agreeing the terms
The next step is to agree the terms which will govern your relationship. It is crucial to get this right to avoid unnecessary disputes in the future. Again, this is not an exhaustive list but these are all key considerations when agreeing terms:
- What are the obligations and rights of each party?
- Are you confident that both you can hold up your end of the bargain and that your chosen partner can meet its obligations?
- What is each party’s respective bargaining power? It is important to always get the best out of any agreement but also be realistic about who you are negotiating with.
- Does the agreement provide you with sufficient rights? What concessions are you willing to give your chosen partner to secure these rights? Compromise is usually key to any successful relationship
- Who will own any IP used in or arising from the performance of the agreement? Do you have adequate protection against any IP infringement claims?
- Will you or your chosen partner be disclosing confidential information during the course of the relationship? How will you ensure that confidential information is protected?
- Are you able to monitor what the other party is doing and have you a process in place to manage the day to day running of the relationship? Clear audit rights and robust governance procedures will be vital to ensuring a smooth relationship.
- Finally, be very clear in the agreement on who is responsible for what. If it’s not written down in the contract you will find it very hard to enforce a right and could be left high and dry if the relationship breaks down.
3. Planning for the future
While it may seem fatalistic it is important even at the outset of the relationship to think about how the relationship could end. In commercial terms this means ensuring that the termination clauses in your agreement are appropriate and satisfactory. Things you will need to consider are:
- What notice period is necessary and what is practical for your business?
- When should either party be able to terminate the agreement with immediate effect?
- Will the relationship have a fixed term or will you be operating under a rolling contract?
- If the relationship has a fixed term, what happens when this ends? Is there an opportunity to renew? Have you got a process in place to agree an orderly exit?
- If there is a dispute, how will this be handled? If the other party is an international company, what jurisdiction and governing laws will apply?
As you can see, the 'birth' of a commercial relationship is a point at which making informed decisions is key. The decisions you make at the beginning of the relationship will govern what happens during the 'marriage' and ultimately the 'death' of any commercial relationship.
In the next article of the series we will discuss how to keep the 'marriage' in good shape once the honeymoon period is over.
This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.