The British Chambers of Commerce has cut its economic growth forecast for this year, painting a rather gloomy picture of the manufacturing industry in Britain. UK manufacturers blame the difficult conditions on weak market conditions home and abroad.

If the UK manufacturing industry is to seize the potential for growth, businesses will have to do more than cut costs and try to access the limited funding that is out there.

Engaging in effective partnering and embracing a more collaborative approach will be vital to accelerate and facilitate innovation, which can reduce costs, secure development of new products and open up new markets.

There are various possibilities for collaboration and bespoke partnering arrangements that can be put in place but there are three common structures or vehicles used where making money is the key objective:

  1. Joint Venture – this involves the creation of a separate joint venture vehicle, usually a limited company, to develop and commercialise a product or carry out a new business activity. Key considerations when setting up a vehicle of this type include: what each party will contribute to the company; what stake each party will receive; how the company will be funded; how the joint venture company will be managed and whether it will provide the desired tax result for partners.
  2. Partnership – this has the advantage of a separate legal personality in Scotland (though not in England), which means that it can acquire rights or incur obligations as a distinct entity separate from its partners. However, tax on any profits is paid by the relevant partners rather than the partnership itself. The same issues arise for a partnership as for a joint venture company but, in addition, the partnership agreement will need to cover what share of the profits and losses each partner will bear and when the profits are distributed.
  3. Contractual Collaboration – it is possible to collaborate without forming a partnership or setting up a new company by working with another party (or more) through a contractual framework. The contract will need to be as thorough as possible. The failure of one party to perform is a key issue that needs to be addressed early as there is no jointly owned vehicle here. If the project requires grant or bank funding, a formal collaboration agreement is likely to be required to access capital.

With increasing financial pressures, collaboration is likely to be the most cost-effective and efficient way forward for businesses in the manufacturing industry. Those businesses wishing to collaborate must consider as early as possible how they will approach and resolve significant issues such as the precise role of each in the collaboration; who manages the project; how they communicate with each other and third parties and how decisions are taken.

It will be important in any collaboration agreement to identify clearly who will own any intellectual property rights (“IPR”) created as a result of the collaboration and the manner in which it should be commercialised. The collaboration agreement should also set out what happens to the jointly created IPR once the collaboration has ended.

Whilst the collaboration should be viewed in the most positive light, it is also crucial that you address early the consequences of termination of the collaboration or a default, and consider what dispute resolution mechanisms you might use. It is important to take legal advice as early as possible to identify the most appropriate route and ensure that the commercial interests of all parties are properly protected.

Paul Breen