Joint Venture Agreements

A joint venture is when two or more businesses bring together resources and expertise in order to achieve a particular joint goal. A joint venture agreement is often made when businesses want to work on a specific project together for a specific length of time, but do not wish to establish any long-term commitment.

If you are interested in entering into a joint venture agreement, you may wish to consult a solicitor with regards to the drafting of the agreement.

Why might businesses want to enter into a joint venture agreement?

There are many benefits to be gained from forming a joint venture:

• it may enable your business to expand without outside investors or the need to borrow money;
• it may enable the development of new products;
• there will be more resources available, including finance, expertise and technology;
• access to new markets;
• increased capacity to carry out work;
• costs and risks will be shared with a partner;
• it will encourage the businesses to pool resources in purchasing, research and development;
• commitment from both sides can be limited in terms of the timescale of the joint venture or the application of it to only part of your business, therefore allowing for flexibility.

What are the risks of a joint venture?

It is also important to be aware of the risks you may face in forming a joint venture agreement. These may occur if:

• the partners or businesses do not have the same objectives for the joint venture, or the objectives of the joint venture and the business plan are unclear and poorly communicated;
• one partner is contributing a much higher level of specialist staff, finance, assets and/or resources to the joint venture than the other;
• the businesses integrate badly as a result of conflicting styles of management;
  employees involved in the joint venture do not receive sufficient leadership and support from the businesses during the early stages.

Types of joint venture

There are several ways in which joint ventures can be formed:

• A contract could be agreed between businesses to cooperate with each other in a specific and limited way. For example, a smaller business with an innovative new product may attract a larger business that wishes to sell it through their distribution network, leading to benefits on both sides.
• A separate joint venture business could be set up, for instance a new company for the specific purpose of handling and implementing the joint venture agreement.
• Other options may involve forming a business partnership; however, if you are unsure of how to set up a joint venture, you should seek legal advice.

Creating a joint venture agreement

It is important that businesses entering into a joint venture set out the terms and conditions of it in a written joint venture agreement. A joint venture agreement should set out the details of the following key aspects:

• the objectives of the joint venture;
• the structure of the joint venture;
• the contributions made initially and in the future by the joint venture partners;
• respective responsibilities and management;
• how liabilities, profits and losses are to be shared;
• resolution in the event of disputes between partners; and
• an exit strategy.

As mentioned, you should seek independent legal advice before you finalise a joint venture agreement. 

Source:

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