A collaboration agreement is a legally binding contract between the two or more executing parties who execute the agreement to set the terms of their collaboration on a commercial project. A collaboration agreement is usually entered into when two different legal entities performing their own distinct business come together to club their assets/expertise for a specific business undertaking or a new commercial project.
The Collaboration Agreement is also known as a collaborative agreement, a co-operation agreement, or a strategic alliance agreement.
The collaboration agreements can be broadly classified into two categories:
1. the contractual collaborative agreement – the parties, only form collaboration for a specific business project; and
2. An entity-based collaborative agreement – the parties, collaborate to give birth to a separate legal entity in a company or a business.
A collaborative agreement is made to give structure to the alliance. Thus it ought to answer a few general questions about the coalition, such as
How would the collaboration operate?
What would be the purpose served by the alliance?
In what ratios are the contributions regarding Money, Time and Skills would be made by the parties?
Which party would be deemed as the owner of the collaboration?
What would be the crediting policy of the collaboration?
Who would govern the terms regarding payments and asset management?
Who would have the decision-making power in cases of any unforeseen events?
How would the collaboration function if and when one of the parties decides to leave the alliance?
An ideal collaborative agreement answers such abovementioned basic questions about the alliance.
The collaborative agreement shall have the following crucial clauses listed:
· Definition Clause: This clause contains the meanings of the terms used repeatedly and forms the basic structure of the agreement. A definition clause is essential to better clarify and understand the agreement's contents. It aims to clear all the ambiguities and misunderstandings that can occur due to faulty interpretation of the terms of the agreement.
· Purpose: This clause is a guiding clause to the parties and can be equated to the focus part of the agreement. It contains the objectives and goals of the collaboration, the parties' expectations from the collaboration, and the scope to which the collaboration would strive to attain its goals.
· Responsibilities and Obligations: This clause is inserted to lay down the ratios of the contributions in the form of Money, Time, Skills, Intellectual Property, and Assets that would be clubbed by both parties to kick start the collaboration. It also lays down the duties of both parties as a part of the collaboration.
· Duration, Period, and Schedule: This clause denotes the life of the agreement, the date on which it is executed, the period of the project for which it is executed, and the timeline for the speculated achievement of milestones by the collaboration. This clause is usually open-ended to allow the parties to extend the duration of the collaboration after the expiry of the initial period.
· Payments: This clause speaks about the funding of the project, the initial investments by the parties, provisions regarding obligations at the time of breach of any payment by any party, the distribution of profits, etc.
· Confidentiality: This clause can be equated to the Non-Disclosure Clause in any agreement. It binds the parties not to leak any commercially sensitive information involving the collaboration to any third party to the agreement.
· Intellectual Property Rights: This is a forward-looking clause in a collaborative agreement and aims to determine the ownership and protection of the Intellectual Property generated during the collaboration.
· Limitation of Liability: This clause limits the liabilities of the parties at the time of non-performance of any obligations of the parties.
· Disputes: This clause lays down the dispute resolution process between the parties during the collaboration.
· Termination: This clause determines how to terminate the collaboration if the project fails or is not profitable anymore. This clause also lays out the lock-in period for the parties executing the agreement.
The contents of a collaborative agreement are distinct in every agreement since the agreement's purpose mainly determines them. For example, a technology or data transfer project would have terms centred on Intellectual Property, and real estate collaborations would have terms regarding property protection and preservation, etc.
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