Strategic alliances among businesses take many forms, one of which is an agreement to share an asset or assets for the benefit of both organizations. Asset sharing may range from a simple agreement to share an expensive piece of equipment to more complex sharing of intellectual property rights. Even data can be an asset subject to sharing.
However, even the simplest asset-sharing arrangement requires significant planning and is facilitated when each party to the agreement is represented by separate counsel experienced in the negotiation and drafting of asset-sharing agreements.
Issues for Consideration in an Asset-Sharing Arrangement
Businesspeople joining forces to purchase or otherwise share one or more key assets may oversimplify the issues, neglecting to consider some or all the following:
- If the asset is a physical piece of equipment, where will it be housed?
- If the asset can be used by only one party at a time, how will access be allocated?
- Who will have legal ownership of the asset?
- How will the asset be financed?
- Who will be responsible for insuring the asset?
- Who assumes risk of loss?
- Who will assume liability associated with the asset?
- Who will claim any depreciation deduction associated with the asset?
- What, if any, limitations are placed on the nature or scope of use of the asset?
- Under what circumstances might one party to the agreement have liability to the other?
- How will disputes be resolved?
- For how long will the parties share the asset?
- What type of disposition will occur when the arrangement terminates?
- Will each party claim ownership of and take revenues from what it produces with the asset, or is there a joint undertaking?
- If there is a joint undertaking, how will resulting discoveries, products or other yield from the use of the asset be owned and allocated?
Note that many of these issues will play out differently and require a different type of evaluation and planning depending on the nature of the asset and each party’s plans for its use. For example, limitations on use of a warehouse property might involve the type of materials to be stored there, or a percentage of storage space available to each party. On the other hand, if the asset involves data, appropriate limitations might relate to how that data is used, privacy considerations, or restrictions intended to ensure that the parties were not in competition with one another.
The above is just a short list of some core issues to be incorporated into an asset sharing agreement. Depending on the nature of the asset or assets and the number of parties to the agreement, a number of other issues may arise. Failure to address any of the issues listed above or the myriad other questions that may arise in connection with a particular type of asset sharing arrangement could have a significant negative impact in that:
- Unresolved issues may lead to conflicts and even litigation when they arise
- Failure to address such issues and clearly articulate plans can interfere with efficient use of the asset
- Without clear allocation of risks and liabilities, one party could unintentionally become liable for use of the asset by the other party
- Problems or disputes may arise at the end of the agreement period if disposition of the asset has not been addressed in the agreement
An Asset Sharing Attorney Can Help
Asset sharing arrangements, though growing in popularity, are still rare enough that your company may never have entered into such an agreement before. Even if asset sharing arrangements are not unfamiliar to you, each situation is different and requires consideration and resolution of different additional issues, or a different type of resolution to those issues.
If you are considering an asset sharing arrangement with another business, our experienced attorneys can help you:
- Determine the stability of the company or companies that will be party to the asset sharing agreement
- Assess the proposed arrangement and inventory issues to be resolved
- Advise you as to each of the issues to be addressed in the asset sharing agreement
- Negotiate on your behalf
- Draft or review the asset sharing agreement
- Ensure that you fully understand your rights and obligations under the agreement
- Assist with any disputes that may arise during the course of your agreement
- Advise you as you wrap up and arrange for disposition of the asset
- Provide any additional services required to make your asset sharing agreement run smoothly and profitably
Do not let a good plan that has the potential to benefit both companies go awry because you have not done enough advance planning and research. The experienced, strategic-alliance attorneys in our firm are standing by to provide the assistance you need, whether the asset you are planning to share is a warehouse or a top-secret technological process. Contact KPPB LAW today.