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Contractual Considerations by Kylie van Heerden
1. Contractual Considerations:
Structuring Commercial
Relationships and Associated
Agreements to Suit your
Needs
Kylie van Heerden
2. CONTRACTUAL CONSIDERATIONS
Key things to consider in any Product
Development / Research Agreement
• The Project
• Obligations of the Provider
• Fees and Payment
• Intellectual Property
• Confidentiality
• Insurance and Indemnity
• Termination
• Dispute Resolution
3. The Project
1. Scope:
• What are you wanting to achieve / what are you
asking of the Provider?
2. Term:
• How long is the Project likely to take?
• Is there a fixed or required timeframe?
• Are there milestones to be met?
3. Supervision:
• Who has general responsibility for the Project?
• What level of involvement do you want /
how frequently do you want to be kept up
to date?
4. Key Obligations of the Provider
• Standard of care / compliance with applicable
laws and regulations.
• Recording of results.
• Reporting requirements.
• Responsibility for outgoings.
5. Fees and Payment
• Fixed fees / staged fees based on milestones /
success fees?
• Who is responsible for expenses such as travel
and other incidentals?
• Is any external funding being provided
(e.g. MBIE funding)?
6. Intellectual Property
• Ownership of Background IP (e.g. each party
retains ownership)
• Licence to use Background IP? If so, on what
terms?
• Who owns Project IP?
• Licence to use Project IP? If so, on what terms?
• Are there any rights of publication granted to the
Provider (e.g. if project forms part of a Thesis)?
7. Confidentiality
• Each party to observe obligations of
confidentiality.
• No unauthorised disclosure.
• No competition.
• Exceptions (e.g. where information is in the
public domain).
8. Insurance and Indemnity
• Public liability insurance / minimum
requirements?
• Indemnity for loss resulting from breach?
• Unlimited or limited liability?
9. Termination
• Grounds for termination?
• Consequences of termination?
• Reconciliation of fees paid?
11. STRUCTURAL OPTIONS
Often a company will get to a point where they no
longer want to, or are able to, take their vision to
the next step alone.
There are various structural options, and the right
structure will depend on a number of factors,
including capital requirements, tax considerations,
number of interested parties, Government funding
requirements etc….
12. For the purpose of this presentation we will look at
three of the more popular structures:
• Incorporated Joint Venture
• Unincorporated Joint Venture
• Limited Partnership
14. Key Advantages of Incorporated JV
• Recognised business entity in New Zealand.
• Limited liability at the joint venture level.
• Flexibility of ownership and funding structure.
• Distributions can be made of both capital and
profit (subject to the solvency test) under the
Companies Act.
• Governance and management structure.
• General administration and accounting is
usually more efficient.
15. Key Disadvantages of Incorporated JV
• Inability to pass losses through to the
shareholders.
• Compliance with continuity of ownership
requirements before a company can carry
forward losses and imputation credits (this
makes a company vulnerable to ownership
changes).
• Capital gains cannot be distributed to resident
shareholders without a further tax impost, other
than on the winding up of the company/through
a company share buy-back.
17. Key Advantages of Unincorporated JV
• Typically, each party is only liable for its
proportionate share of the joint venture’s
liabilities.
• Tax losses incurred are received by the parties,
and depreciation and interest costs can be
claimed directly by the parties.
• Imputation credits are generated in the correct
entity.
• Capital gains are received by the parties without
any tax on dividends.
18. • The joint venture has no separate legal
personality and therefore is not required to file a
tax return.
• Each party is effectively obliged to return its
proportionate share of joint venture income and
is assessed on an individual basis.
19. Key Disadvantages of Unincorporated JV
• No limited liability
• Some uncertainty as to whether the Partnership
Act 1908 applies.
• The marketability of the joint venture interest is
often less compared to shares in a company.
20. • The ability to finance the joint venture
itself or a joint venture interest through
lending institutions is often more difficult.
• Capital gains cannot be distributed to
resident shareholders without a further tax
impost, other than on the winding up of
the company/through a company share
buy-back.
22. Key Advantages of a Limited Partnership
• Losses can be offset against Limited Partner’s
income.
• Capital gains can be distributed.
• Management is centralised.
• Like a company, the entity has limited liability.
• Attractive vehicle for overseas investors.
• The identity of Limited Partners is confidential.
23. Key Disadvantages of a Limited
Partnership
• Structure is slightly more complex than a
company.
• Limited Partners can not participate in the
management of the entity (although they can by
wearing a different hat).
24. Key considerations when deciding what
structure works best for you
• Capital / Finance Requirements?
• Likelihood of tax losses?
• Residency of participants?
• How many parties should be involved?
• Who brings what to the table?
25. • The value of each party’s contribution (be it
financial or otherwise)?
• Is the venture a one off project or an on-going
business relationship?
• What sort of management structure is favoured
(i.e. a formal board or an informal management
committee)?
26. FURTHER ASSISTANCE
For further advice on the legal aspects associated
with taking your product / business to the next
level, please contact:
Kylie van Heerden
Partner
Sharp Tudhope
DDI: (07) 928 0777
Email: kylie.vanheerden@sharptudhope.co.nz
