HOUSTON BUSINESS REVIEW

CYA: A Lesson on Strategic Alliances, Pt. 1
By Shahara Wright

Shahara D. Wright, Business Law Attorney, "Serving businesses from start-up through expansion". You can cantact her by: calling her at (281) 980-2040, sending her an e-mail or visiting her website. For more information concerning Shahara Wright click here.

Most business owners know that to obtain contracts from major corporations or government entities that they must come together with other businesses. The idea of using strategy when conquering a certain market is not new. Large corporations have been forming strategic alliances for years. Now, it seams that it is time for smaller companies to do the same. This article is a two part series on the legal issues involved with forming strategic alliances. One of the major issues involved with strategic alliances is what form should it take. There are several ways to form strategic alliances here are a few:

Limited Liability Company (LLC): When forming a strategic alliance, one must determine the purpose. If the strategic alliance has long term goals (five or more years) an LLC may be a good option. However, it may put a lot of responsibility on the individual companies. For example, each company would be required to make some type of financial contribution. There may also be difficulty in determining how profits will be split. Annual meetings are required, as well as keeping minutes. Units (similar to shares) will be issued and can be freely sold to others. The LLC can survive the original members and dissolving the company can be difficult.

General Partnership (GP): A GP does not provide liability protection to its partners. However, if both companies are already incorporated or an LLC, it may not matter. GPs are easier to form than LLCs and have less regulation. Management of a GP is relatively simple and GPs can exist for long or short periods of time. A partnership agreement should be written and signed before any business takes place. Like LLCs, GPs are going to require some type of contribution to be made by its partners.

Joint Venture (JV): A JV is a partnership for a specific purpose. Two or more companies may agree to act as one when acquiring a bid or a contract. Unlike a LLC or GP, no contribution is required. JVs can be done on a per project basis so that profits can be determined accordingly. The JV will end when the project ends. Unless the companies agree, each can go its separate way when the project ends.

Contract: The simplest (not always the best) of all the previous examples would be to create a contract between the parties. This would be similar to a subcontracting situation where there is a primary business that will bid for contracts and agrees through a sub-contract to utilize certain businesses. The companies would then agree upon a price for their particular services and would then be paid according to the contract. There would be no profit splitting of overall profits. Each company would be responsible for its own portion. This method does not give the appearance of a strategic alliance to larger corporations, but can be useful if the small companies are coming together for the first time.

This article provides general information. This article does not provide legal advice about specific legal problems. Consult an attorney about your particular situation.