"VARs can only have so much reach within a certain solution before they run out of people and tools," says Michael Haines, a principal analyst for Gartner, a technology-research and advisory firm in Stamford, Conn. "The only way to go after bigger or more mission-critical opportunities is to partner."

Legalizing your partnerships offers a sounder foundation for sharing capital to fund research or develop and market new or existing products. Formalizing relationships decreases your chances of misinterpreting the terms of alliances and increases the importance of commitment. It also helps you protect shared assets or property.

"This is especially important in the IT industry, because collaborators are often competitors," says Christine Adams, also a principal analyst at Gartner.

But going to market with other companies isn't intuitive, Adams says. "Even though it sounds easy, and everybody is doing it, it is a lot more challenging than most realize," she adds.

Here are five steps to help make your alliances work.

1. Choose complementary companies

The synergies must be real. You don't want a competitor to take away your relationship with a customer.

"Make sure that the people you are working with are of good standing, and they are not trying to steal your business," says Bunty Lalchandani, president of Micro World, a Torrance, Calif.-based VAR that provides IT solutions to SMBs.

It's also a good idea to collaborate on a few projects before formalizing a relationship. Different corporate cultures, belief systems, policies and approaches can undermine a business venture.

"If you have nagging doubts about a partner, it's probably not a good fit," says Chanley Howell, a partner of the law firm Foley & Lardner, in the Jacksonville, Fla., e-business and IT group.

2. Decide how to formalize the relationship

Do you want to establish a contract, or join the other company in a separate entity? Creating separate companies is more involved. You must determine the ownership percentage of each participant after determining how to quantify the relative contributions of the parties. Money and personnel are easier to measure than intangible assets. "Decide how important the intellectual property is to the business model," Howell says. "For software companies, the price of a license can often provide a figure."

The partnering companies also must establish a management structure for the new entity. In many cases, ownership of the new company depends on which partner contributes key personnel.

3. Set up a contract

The devil is in the details. If you don't clearly define the relationship, it might cost you money later in attorney and adviser fees. Consider what happened to Boom Vang Consulting, a small e-business solution provider based in Portland, Ore. When it established a contract with a software VAR, Boom Vang offered only services. Then it moved into the software market. When the contract expired, one of its partner's customers came to Boom Vang to buy software. Could it take the account?

"We didn't know who owned the relationship," says John Pontefract, principal of the company. "It's almost impossible to forge a contract that includes everything. But communication is key. Be willing to revise a contract or draft up new terms."

Boom Vang's situation raises one of many important questions when drafting a contract: Who has the relationship with the end user? Controlling an account is essential. Billing and collection is one way to secure that control; tech support is another.

The life span of account control should also be determined so the contract doesn't make you forever beholden to a company. Another question: How are opportunities and revenue shared in various situations? You need to identify and quantify each partner's participation in the venture. The more important your contribution is, the more negotiating power you'll have. You must also define the basis for establishing a revenue-sharing figure: selling price, for example, or net selling price?

Rules on post-term payments should be clear as well. If the relationship generates sales after the contract expires, do the parties have an obligation to share the revenue? Other questions to consider: Who does what task and in what geographic area and market? How much money and personnel does each company supply? Can participants partner with other companies to capitalize on the same opportunity? Consider Micro World's partnership with Los Angeles-based Compuall. "The relationship is based solely on trust and mutual respect," says Micro World's Lalchandani. "We request and hope for exclusivity, but that's not a requirement or expectation. The most important part is trust."

4. Manage the relationship

Assign a specific employee to manage the relationship. Set up metrics to assess the progress of the venture. Reserve the right to audit your partner's books, at least once a year. Establish periodic meetings to discuss the success of the relationship, and make sure each participant is holding up its end of the deal.

"One of the main threats is that each partner is not on the same level of involvement," says Frederic Giron, senior consultant at Pierre Audoin Conseil, a New York-based research firm.

5. Determine an exit strategy

Decide the terms under which you can end a partnership. Some factors: inconsistent quality, failure to meet minimum revenue requirements and breach of confidentiality provisions. If the partners are in different states, define the jurisdiction for any disputes and how to settle them,in court or through arbitration.

Lisa Meyer (meyerlisa@mac.com) is a freelance writer based in Staten Island, N.Y.