This talk describes different types of strategic alliances small businesses may form. It also discusses the partnership law and tax issues that may be relevant to alliance members.

1. Strategic AlliancesStrategic Alliances
By: William A. Price, Attorney at LawBy: William A. Price, Attorney at Law
wprice@growthlaw.comwprice@growthlaw.com

2. Possible Legal RelationshipsPossible Legal Relationships
Resulting From Alliance FormationResulting From Alliance Formation
• Parallel Play—No Explicit
Agreements
• Alliances For Profit, With or Without
Agreements
• “Nonprofit” Alliances

3. Alliances for ProfitAlliances for Profit
• Partnership—two or more “persons”
engaged in an activity for their mutual
profit
• Joint Venture—Explicit agreement for one
or more profit-making activities

4. ““Nonprofit” AlliancesNonprofit” Alliances
• Unincorporated Association—two or more
“persons” engaged in an activity not for
profit
• Consortium—Explicit agreement for one or
more “nonprofit” activities

5. Parallel Play: Microsoft vs. LinuxParallel Play: Microsoft vs. Linux
Microsoft: We are the
World
• Proprietary design
standard
• Alliance “partners”
• We make software,
Intel the chips, others
the boxes
Linux: Cooperative Play
• Open license
• Design community
• Proprietary systems
built on open license
cores: eg Linux +
Apache
• Cross-platform
software design

6. More Parallel PlayMore Parallel Play
Infomediary-Mediated Play:
• Independent truckers and shippers
(multiple exchanges),
• Lawyers and clients (Guru.com,
elance.com)

7. Parallel Play With RulesParallel Play With Rules
• Formal Exchanges: Chicago Board of
Trade, wheat pit, or other defined
transaction environments
• Parallel networks: Archipelago and other
interbroker trades, using exchange
contract definitions

8. Unregulated PlayUnregulated Play
• Non-exchange defined contracts, hedge
fund players: can be risky business
• Amaranth Advisors: $9.2 billion to $3.5
billion, August-September 2006 gas trade
loss

9. Partnerships:805 ILCS 202Partnerships:805 ILCS 202
Formation of partnership. …the
association of 2 or more persons to carry
on as co-owners a business for profit
forms a partnership, whether or not the
persons intend to form a partnership.

10. Consequences of PartnershipConsequences of Partnership
RelationsRelations
• All partners are general agents for the
partnership: they can make contracts that bind
the other partner
• Partners have fiduciary duties to the partnership
and to each other: they may not be able to
compete or to fail to inform each other in areas
of information relevant to their partnership
• Partnership tax rules apply to all partnership
income and expenses: partners realize their
share of each every tax year.

11. Are These People Legal Partners?Are These People Legal Partners?
• IMI and Can-Am Form Strategic Alliance
- Packaging OnLine - Sep 22 10:55 PM
• Claris in Strategic Alliance for Spanish
Market - New Kerala - Sep 22 11:15 PM
• SmartCare Family Medical Centers Enters
Deeper Strategic Alliance With Wal-Mart
Stores - RedNova - Sep 20 7:24 AM

12. IMI and CAN-Am:A Joint VentureIMI and CAN-Am:A Joint Venture
(From PACKAGING WORLD):
• “Independent Machinery, Inc. (IMI), Palatine, Ill.,
and Can-Am Packaging Equipment Corp. have
formed a strategic alliance encompassing joint
representation for quality finishing equipment,
excellence in engineering, and service and
training in North America, South and Central
America, and Mexico. This joint venture is a
commitment to … supply the most advanced
finishing equipment to the folding carton and
corrugated container markets.”

13. A Joint Venture Is A PartnershipA Joint Venture Is A Partnership
“A joint venture is not regarded as identical with
a partnership, although, as a practical matter,
the only distinction between the two is that the
former relates to a single specific enterprise or
transaction while the latter relates to a general
business of a particular kind.”
-- Ambuul v. Swanson, 162 Ill. App. 3d 1065,
114 Ill. Dec. 272, 516 N.E.2d 427 (1 Dist. 1987).

14. Marketing Agreement=PartnershipMarketing Agreement=Partnership
Example: “Claris Lifesciences Ltd today
announced its foray into the Spanish
market with the signing of a marketing
agreement with one of the country's
leading firm Juste Pharmaceuticals.”

15. Additional Legal ComplicationsAdditional Legal Complications
• Unbreakable Deals: EU, for instance, may
create a quasi-property right in local
dealerships: no termination allowed
without a legal basis
• Antitrust Law: All agreements “in restraint
of trade” are potentially illegal

16. Dancing With ElephantsDancing With Elephants
• To survive, you are either quick
• Or dead

17. A Pygmy-Elephant AllianceA Pygmy-Elephant Alliance
“SmartCare Family Medical Centers, a
rapidly growing operator of retail
healthcare centers, will increase its
expansion into the Denver area with an
agreement to design, build and operate a
significant number of SmartCare Centers
inside Denver-area Wal-Mart stores.”

18. Two Levels of PlayTwo Levels of Play
• Equals: Compete or Play, By Agreement
or in Paralell
• Small and Big Business: Big Business
Makes The Market, Small Has The
Product Big Doesn’t Have

19. Nonprofit AlliancesNonprofit Alliances
Religious Organization Example: Short-
Term Mission
Parallel Play: Immanuel Presbyterian,
Warrenville and Interlagos Presbyterian,
Sao Paulo: Both exchange visits, prayer,
communication

20. Nonprofit AlliancesNonprofit Alliances
Infomediary Example:
www.strategicalliance.org
Sets up short-term mission trips for many
mission agencies and churches

21. Formal Nonprofit AlliancesFormal Nonprofit Alliances
A consortium example:
http://www.preventioninstitute.org/sa
“The Strategic Alliance for Healthy Food
and Activity Environments (Strategic
Alliance) is a coalition of nutrition and
physical activity advocates in California.”

22. Common Issues, For-Profit AndCommon Issues, For-Profit And
Nonprofit AlliancesNonprofit Alliances
• Control: Parallel play and undefined
exchanges, alliance without ownership or
agreement, present risks for all parties
• Liability: Partnership, antitrust (e.g. ADM
and Lysine), other liabilities from joint
market activity and discussions
• Property: IP (new and old), customers,
employee loyalty may be with one, not all
partners

23. For-Profit Special Issues (I)For-Profit Special Issues (I)
• Antitrust is of particular concern if product
pricing may be at issue: joint ventures or
other joint ownership may avoid problems
• Greed may be the opposite of trust: have
a formal exit agreement if significant
property is involved
• Players need rules: if there are predefined
boundaries, then unfair play can be
detected

24. For-Profit Issues (II)For-Profit Issues (II)
• Capital Availability may dictate alliance
elements: corporate “venture capital” or
opportunities may defined alliance rules
• Liability allocation (or at least appropriate
insurance cover) is essential (e.g. builders
vs. architects vs. owners)

25. For-Profit Issues (III)For-Profit Issues (III)
• Cash Flow Issues Are Important: Lack of
cash flow kills alliances as well as
businesses
• Taxes need to be paid: local, state,
federal, and international jurisdictions try
to reach as many income streams and
property elements as possible: try to
arrange alliance affairs to eliminate tax
liability

26. Example, Tax PlanningExample, Tax Planning
• Boeing, other U.S. companies have
international trade and leasing companies
in tax-advantaged jurisdictions
• Boeing still may use more than ½ of all
U.S. Eximbank financing every year—but
may not pay U.S. tax on all sale proceeds.

27. Example, Liability PlanningExample, Liability Planning
• Chicago Board of Trade, NYSE
considering incorporation
• Eliminates Illinois liability shield for
nonprofit directors
• But: allows payment of dividends for
exchange’s “infomediary” profits
• Expect large Director and Officer Errors
and Omissions Insurance premium
payments

28. Small Business AlliancesSmall Business Alliances
Example: Event Cosponsorship
Regional Chamber “Business Networking”
events, with sponsors
IIT/MEF meetings, Rice campus
What organization could you help support,
with others, to get visibility?

29. Small Business AlliancesSmall Business Alliances
Parallel Play:
“Leads Clubs”: Noncompeting organization
meetings
Formal Alliances: “Certified” grocers,
common trademark “car care” providers

30. Your Alliance PortfolioYour Alliance Portfolio
• Parallel Play: What sandboxes am I
in/could I be in?
• Formal Alliances: Who wants to talk to the
same people I do, and doesn’t do what I
do? What value chains am I in? What
rules do we need?
• Nonprofit alliances: do well, by doing
good.