What Is A Joint Venture Agreement: Everything You Need to Know
What is a joint venture agreement? It is a contract between two parties used to accomplish a specific goal. A joint venture agreement may be the ideal arrangement for your business entity if you need to accomplish a short-term project.4 min read
What is a joint venture agreement? It is a contract between two parties used to accomplish a specific goal. A joint venture agreement may be the ideal arrangement for your business entity if you need to accomplish a short-term project.
What is a Joint Venture (JV)?
A joint venture, or JV, is a type of business arrangement where two or more parties make an agreement to pool all of their resources to achieve a specific goal. The goal can be a task, a new project, or any form of business activity. All participants in a joint venture are responsible for all the costs, profits, and losses associated with it. The venture itself, however, is completely separate from the party’s other businesses.
While a joint venture is similar to a partnership, it holds no legal standing. Corporations, partnerships, LLCs, and other types of businesses can all form joint ventures. While these arrangements are generally used for research purposes or production, they can also be used for other purposes.
A joint venture can be used to combine both large and small companies to work on bigger projects than they would be able to handle individually.
While joint ventures are similar in nature to a partnership, the primary difference is that a JV is used for one single business activity for only a specified period of time. A partnership is a long-term relationship that is ongoing.
There are some tips to help ensure that a >joint venture is successful, including the following:
· Be sure to have a good relationship with all parties upfront.
· Always have a clear line of communication. It is best to have some pre-arranged face-to-face meetings with all the key players involved in the joint venture.
· Sharing all information openly is key, especially with regard to finances. This will prevent any potential suspicion on all sides of the venture. This will help build trust and result in a stronger working relationship.
· Everyone needs to be on board with regard to the goals of the venture. Have some straightforward performance indicators so that you can measure all achievements and have immediate notification if there are any problems.
· Make sure that your relationship is flexible. Do regular reviews to see if there is room for improvement with regard to your processes to see if anything can be done more efficiently or if changes to the overall objectives are necessary.
Keep in mind that no matter how great your relationship is, there is always the chance that problems will arise. Try to approach any disagreements in a positive way, aiming for a win-win solution instead of going against one another.
There should be a clause in your joint venture agreement regarding dispute resolution in the event there are differences too difficult to deal with on your own.
The joint venture agreement is your most important document because it will state all of your rights and obligations, along with those of the other party.
Some of the key elements of a joint venture are:
· The parties involved
· The scope of the joint venture
· What each party to the joint venture will contribute
· How the joint venture is structured
· What will be contributed and how the ownership of the project will be divided
· The type of arrangements after the completion of the task
· How the joint venture will be managed
· How the joint venture is staffed
Also, it is important that a method of termination is specified in the agreement in the event the joint venture does not work out. A 60-day notice is typical for most joint ventures.
Types of Joint Ventures
One way to get into a joint venture is to agree to work with another business in a specific and limited way. For instance, if a business has a new product that they wish to sell but need a larger distribution network, the two could work together on a contract on making that happen.
You could also opt for a separate joint venture. This could be a new company to handle a certain contract. This is a very flexible option. All the partners can have shares of the business and agree on the management aspects of it.
Other options could also work in different circumstances. You could choose to form a business partnership or even merge two of your businesses.
To decide which option is best for you, be sure to consider how much you want to be involved, if at all, in the management of it. Also, consider what will happen if the venture does not work out and the amount of risk you are willing to take.
If you need help with joint ventures, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.