Cooperation agreement

What it means

A cooperation agreement is an innominate contract in which two or more partners agree to work together towards a particular goal, such as a project, sales, product development or a joint tender bid, without forming a new company. Each partner remains an independent business with its own accounts and liability.

Because the law does not regulate its content, the agreement rests on freedom of contract, and every important rule must be in the text. This mainly covers the division of tasks, costs and revenue, rights to the results of joint work, decision-making, protection of confidential information and how the cooperation ends.

A cooperation agreement is often a simpler alternative to a joint venture set up as a new company. It is quicker and cheaper, but the partners have no joint assets and no joint legal personality, so towards third parties each acts on its own, or one acts for the others under a power of attorney.

How it works in practice

In practice, the agreement is used when, for example, an accounting firm works with a lawyer and an IT company on a combined offer for clients, or when a manufacturer and a distributor enter a new market together. It must be decided who invoices the customer, how the fee is shared and who bears the risk if the customer does not pay.

When information is exchanged, it is sensible to add a non-disclosure agreement and define what counts as each partner's trade secret. If a joint result arises, such as software, a design or a customer database, the agreement should say who owns it, who may use it after the cooperation ends and on what terms.

For tax purposes, the partners invoice each other for their shares as ordinary supplies, including VAT where they are registered. When costs are shared, documents showing what was actually supplied are important, otherwise the tax authority may challenge the deductibility. Between related parties, the arm's length principle must be respected.

What to watch out for

If competitors cooperate, for example on a joint bid or an arrangement about prices, the agreement may run into competition rules. Agreements between competitors to share markets or customers or to fix prices are prohibited and carry heavy fines. When in doubt, it is worth taking specialist advice.

Unclear termination is a frequent problem. The agreement should set the notice period, how work in progress is settled, the return of materials and possibly a non-compete clause. Without that, disputes over customers, money and who may continue the project can follow once the partners part ways.