Temporary Partnership Agreement
A temporary partnership agreement is a type of partnership that two entities enter into for the benefit of both. Collaboration is usually part of the arrangement between the parties because the goal is to successfully complete a business activity. This type of arrangement helps the involved parties combine their resources to achieve more efficiency when marketing products, producing products, or selling services. It’s possible to enter this type of agreement using a verbal contract; however, a written contract is ideal because it gives both parties involved a record of the contract terms.
A joint venture, or temporary partnership agreement, allows both parties to enjoy greater benefits than either could alone. Some temporary partnership agreements are long-term and last several years. Others are short-term, temporary partnerships. Temporary partnership agreements can be set up to increase sales, share intellectual property, conduct research, decrease manufacturing costs or expand distribution channels.
Other aspects
Temporary partnerships may be formed under a variety of circumstances. They generally involve at least two different businesses, or people, coming together for a common business purpose. Some business partnerships are long-term arrangements, however, there is also what’s known as a temporary business partnership. This is often also referred to as a temporary joint venture, or simply a joint venture.
The temporary nature of this type of partnership is usually related to a temporary business need. For example, if two companies are combining their forces to market specific products, then they may agree to a formal joint venture. The agreement to work together can be made informally, via a conversation and a handshake, but it is more often done formally and in writing.
Putting the agreement in writing memorializes the terms, so there is less likely to be a dispute over them. It can also serve as a record if the parties do have a dispute. Once the businesses join to work on the venture, they can share resources, making the venture more efficient, and, hopefully, more profitable to each. The partnership ends when the reason for working together is completed (or at a specific, agreed-upon date).
Customer sharing in a temporary partnership agreement
Temporary partnership agreements for online downloadable products are common. One temporary partnership agreement partner presents his product to his partner’s list of customers. The list owner gains a commission by having the sales go through a verifiable third party. The product owner benefits because his product is exposed to new customers. This also works offline. A motorcycle repair shop may announce to its customers that a motorcycle tire dealer is having a sale. If a tire customer mentions the repair shop’s name, the customer receives a discount, and the shop may receive a commission.
Distribution channels for temporary partnership agreements
A temporary partnership agreement uses the established distribution channel of one joint venture partner to sell the products of the other partner. The first company benefits because it receives a percentage of sales without devoting any resources to producing the product. The second company benefits because it doesn’t have to struggle to set up distribution.
Manufacturing
A temporary partnership agreement between a company that lacks manufacturing facilities and a company with excess manufacturing capacity results in a win-win situation for both. The manufacturer with down time keeps its employees and equipment employed on a full-time basis. The company without facilities doesn’t have to invest in equipment.
Shared services in a temporary partnership agreement
Prospective partners may each lack the resources to hire a full-time service firm, such as a public relations company. If they put their funds together, however, they might have enough to interest the service firm hence a temporary partnership agreement. This strategy works when the companies complement each other, are in the same industry, or the service firm has a database that’s useful for both. Services might also include research, ghostwriting or search engine optimization.
Warning in a temporary partnership agreement
Make sure the responsibilities and rewards are clearly spelled out for both joint venture partners in the temporary partnership agreement. If sales are involved there should be an objective third party that collects and distributes the funds. Alternatively, the company that collects the sales and pays the other joint venture partner can agree to be audited independently. The reputation of both joint parties should be positive, as one will reflect on the other. When intellectual property or research is concerned, a non-disclosure agreement should be completed by both parties.
Benefits of a temporary partnership agreement
There are a number of benefits of temporary partnership agreements. The benefits are as follows:
- Allowing parties an opportunity to share customers and clients.
- Granting extra opportunities to each party to earn commissions and make referrals.
- Allowing a reduction in manufacturing effort for both parties.
- Allowing the ability to share services.
- Networking opportunities are provided for.
- Allowing opportunities to increase distribution channels.
The law can prohibit some types of commissions that might be earned, and the law can prohibit some types of referrals between professionals if a fee is exchanged. An example of temporary partnership agreement would be, when one company chooses to do a promotional campaign with another company that sells a complementary product, such as one that’s used with their product. This provides a chance for each company to increase their exposure to that other company’s set of customers. A temporary partnership agreement also leaves room for each partner to use some of the promotional logos, equipment, or tools that are used in producing a product. If one or both companies are producing new packaging or new products, forming a partnership is also a helpful technique.
A temporary partnership agreement can also be called a temporary business partnership, a joint venture, or a joint enterprise. The term joint venture is the most specific of these because its whole point is to achieve a certain goal. The term enterprise is less specific, not as formal, and it refers more to a general sharing between the businesses.
Temporary partnership agreement temporary nature
With the temporary nature of a temporary partnership agreement, involved parties can form a partnership with the goal of promoting a certain type of product, then when the marketing campaign is finished, the temporary partnership agreement expires. It can be renewed later if the companies feel that’s needed. Another example of a temporary partnership agreement or enterprise comes into play when two companies join forces to research the market desire for a specific product. The agreement might not have a specific goal, but it can end for other reasons too. An enterprise can end this if the partners decide they’re done researching something and it can end when they decide they have enough information to move ahead with other business activities without one another.
Sharing distribution channels
When a business partnership is established on a temporary basis for the partners to share distribution channels or for one to sell the other partners products, both benefit. One receives commissions from the sales but doesn’t have to spend any of the resources to produce a product. The other company comes out ahead because it can just produce the product and doesn’t have to set up channels for distribution.
Sharing manufacturing facilities
When one company wants to produce something but doesn’t have the manufacturing facilities to do that, and another company has unused space or has manufacturing lines that are in downtime, a joint venture between the companies can help both of them. The manufacturer that has downtime is able to keep the employees working and keep the equipment working full-time. The company that doesn’t have facilities can still manufacture a product without having to invest in equipment or a building.
Sharing services
When two smaller companies don’t have enough resources individually to catch the interest of a large service firm, like a big PR company, they can put their funds together in the hope of creating a budget big enough to get the service firm to come on board. This strategy is especially effective when the involved companies have complementary services, or they can be in the same industry. Some types of services that might be more likely to take on these small businesses if they partner up in a joint venture are research firms, search engine optimization firms, and ghostwriting firms.
Advantages of temporary partnership agreements
There are several advantages for separate businesses working as partners. These include such things as:
- The parties can share a customer base.
- The parties can make referrals of customers to one another.
- Shared resources, including personnel, facilities, technology, and materials.
- The parties can share the manufacturing load, reducing costs to each.
- The parties can share services.
- The parties share risk, which may be more attractive than one company undertaking the cost of risk on their own. Sometimes a company may be unable to undertake the risk alone, but able to accomplish their goal through a joint venture.
- The parties don’t have to form a separate, new company/legal entity. This allows for minimal disruption to a business’s regular operations.
- The parties are able to share their distribution channels
- The overall effort required to accomplish the venture is shared.
As an example: Kellogg, the cereal company, joined forces with Wilmar International Limited. Wilmar had already established a business presence in China, where Kellogg wanted to expand. Kellogg was able to use Wilmar’s distribution channels and other resources. Kellogg increased profits by expanding its market into China, and Wilmar was also able to increase its business opportunities and, thereby, its profits.
Disadvantages of temporary partnership agreements
There may always be drawbacks to any business arrangement. The primary issue in this type of situation is the loss of control that may result from two businesses combining their efforts to some degree. Some of a business’s finances will necessarily be exposed to their business partner, as they share resources in order to accomplish their goals.
Additionally, when two entirely separate businesses come together, it can also lead to contractual issues. There may be questions about how much resources each business should be putting into the partnership and whether either business is allowed to continue on with separate business pursuits. It is important that most of these issues are addressed before the partnership begins, and it is important that the involved business partners put in a good faith effort to be true to the agreement.
What is a joint enterprise and how is it different for a joint venture?
The terms are sometimes used interchangeably. As discussed above, the joint venture is when two businesses combine their efforts and resources in order to reach specific, agree-upon goals. The venture benefits both parties, by allowing them to pool resources and reduce risk.
The joint venture is often undertaken when the parties have a specific goal or product in mind. The parties did not need to combine permanently, only long enough to create a product that benefited them both. Of course, although their partnership ended, the parties could work on a different product together at some point in the future.
A joint enterprise, on the other hand, tends to be made informally. For example, two companies might agree to conduct and share research that each need for a business purpose. The termination of this agreement is less clear than that of a joint venture. There is no “product,” per se, to be completed, so the enterprise may be terminated whenever the parties decide it is at an end.
Do I need a lawyer to help me with my temporary business partnership?
Laws regarding business partnerships vary by state. If you are interested in planning a joint venture, it would be to your benefit to contact a local corporate lawyer who understands the rules in your state. The attorney can help you establish the agreement, including putting the terms in a written contract. Your lawyer can also help if any disputes arise in the course of the partnership
References
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