Cooperation agreement between two companies: a guide and checklist

Two companies decide to cooperate on a project, a market or a service. A handshake and an email are enough to get started, but far from enough to protect both parties if the cooperation changes course or goes off the rails.

A written cooperation agreement is the foundation of any serious B2B cooperation. It sets the rules of the game, allocates responsibility and prevents the misunderstandings that can ruin an otherwise good cooperation.

Note: Cooperation agreements vary greatly in complexity. This guide gives a general overview. Contact a lawyer for larger, complex or long-term cooperations.

When is a cooperation agreement necessary?

A cooperation agreement is relevant in many situations:

• Two companies bid jointly for a contract (a consortium)
• A supplier and a distributor enter into a distribution cooperation
• Two companies share resources, technology or a customer base
• An innovation cooperation where both contribute knowledge and receive output
• An agency or dealer relationship
• A temporary project cooperation

Whatever the form, the cooperation should be supported by a written agreement before the parties start to invest time and money.

What should the cooperation agreement contain?

1. The parties and the purpose of the cooperation

Describe:

• Both companies' full name and CVR number
• A clear definition of the purpose of the cooperation: what do the parties want to achieve?
• The project's or cooperation's geographic and subject-matter scope

A precise statement of purpose is important, because it defines the scope of the agreement and what falls outside it.

2. The parties' contributions and obligations

Who does what? Specify:

• Which services, resources or competences does each party contribute?
• Which deadlines or milestones apply?
• What is the consequence if a party does not deliver?

Vaguely worded obligations ("the parties cooperate as best they can") are almost useless in a dispute. The more specific, the better.

3. Finances and payment

The agreement should describe:

Allocation of revenue and costs: Is the revenue shared in a fixed ratio (for example 60/40)? Are costs shared in proportion to the contribution?

Invoicing: Who invoices the end customer? What happens with VAT? Who bears the risk of non-payment from the end customer?

Internal settlements: Do the parties pay each other for services, and if so at what price?

Costs: Which costs are shared, and which are borne individually?

4. Intellectual property (IP)

One of the most important and most overlooked points. The questions are:

• Who owns what is produced during the cooperation?
• Who owns improvements to existing IP?
• Which licences are given to the parties to use each other's IP in the cooperation?
• What happens to joint IP if the cooperation ends?

Recommendation: Agree that existing IP remains with whoever owns it, and that a licence is given for use in the cooperation. New IP created jointly is owned jointly, unless otherwise agreed.

5. Confidentiality

The cooperation often involves the exchange of confidential information. The agreement should contain:

• A definition of confidential information
• A duty not to disclose to third parties
• Exceptions (publicly available knowledge, disclosure required by law etc.)
• The duration of the confidentiality obligation (typically 2-5 years after the end)

6. Exclusivity

Is the cooperation exclusive, or can the parties cooperate with competitors? Define:

• What is the geographic and subject-matter scope of the exclusivity?
• Who defines what a "competitor" is?
• What is the consequence of a breach of the exclusivity?

Remember that exclusivity agreements can in some cases have competition-law consequences.

7. Liability and insurance

Who is liable for what towards end customers and third parties?

Internal allocation of liability: If party A's error leads to a claim from an end customer, it is party A that should bear the liability internally, and the agreement should reflect that.

Limitation of liability: Both parties may have an interest in limiting liability to a certain sum (for example the year's revenue or a fixed amount).

Insurance: Require both parties to maintain relevant liability insurance (commercial liability) during the cooperation period.

8. Representation and communication

Who speaks externally on behalf of the cooperation?

• Who enters into contracts with end customers?
• Who communicates with the press?
• Who can bind the cooperation?

In a consortium or a JV-like construction, this is especially important, as neither party wants to be bound by the other's actions.

9. Termination and end

The agreement should establish:

Grounds for ending: When can the agreement be brought to an end?

• Voluntary termination with an agreed notice (for example 3 months)
• Cancellation on material breach
• Automatic end after the completion of the project
• End on prolonged force majeure

Consequences of the end:

• Completion of ongoing deliveries
• Allocation of IP and assets
• Return of confidential information
• Settlement of outstanding payments

10. Dispute resolution

What happens if the parties disagree? The agreement should state:

• Negotiation and mediation as the first step
• Arbitration or the courts as the final solution
• The applicable choice of law (Danish law is the standard choice for Danish companies)
• The venue (which court?)

Cooperation agreement or joint venture?

A cooperation agreement is not the same as a joint venture (JV). A JV typically creates a new joint legal entity (for example a joint ApS). A cooperation agreement binds two existing companies, without a new entity being created.

The cooperation agreement is easier and faster to establish but does not give the same structural framework as a JV. Choose the cooperation agreement for projects of limited duration or scope.

Cooperation agreement and competition law

If the cooperation agreement restricts the parties' competitive behaviour (for example pricing, market sharing or exclusivity), it can potentially fall under competition law's prohibition on anti-competitive agreements (section 6 of the Competition Act). Seek legal advice if the cooperation involves these elements, especially if the parties are actual or potential competitors.

Conclusion

A cooperation agreement between two companies is the foundation of an effective and conflict-free cooperation. The most important points are a clear statement of purpose, a precise allocation of contributions, finances and IP rights, well-considered rules on confidentiality, liability and termination, and a mechanism to resolve disputes. And be aware of competition law if you are also competitors.

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The content of this article is for guidance only and does not constitute legal advice. Consult a lawyer for advice on your specific situation.