Joint Venture Agrements
A Joint Venture Agreement, also known as a co-venture agreement, is used when two or more business entities or individuals enter into a temporary business relationship (joint venture) for the purpose of achieving a mutual goal. A Joint Venture Agreement sets out the terms and obligations of the members and the joint venture.
What types of joint ventures are there ?
Contractual : A contractual joint venture is when two or more parties agree to collaborate on a business project, and sign an agreement that outlines the terms under which they will work together. The members continue to operate a separate business with a shared goal but with no pooling of profits or losses. Each party keeps their accounting records separate and there are no registration requirements.
General Partnership : A joint venture in the form of a general partnership is when the partners agree to share in the profits and losses from the project and each party is jointly and severally liable for the obligations of the partnership. This type of joint venture is mainly used for real estate ventures and not for business endeavors related to research and/or product development.
What is included in a Joint Venture Agreement ?
The following is included in a Joint Venture Agreement:
1. Business location
2. The type of joint venture
3. Venture details, such as its name, address, purpose, etc
4. Start and end date of the joint venture
5. Venture members and their capital contributions
6. Member duties and obligations
7. Meeting and voting details
8. Management, dissolution, and assignment of interest details
9. Non-compete, confidentiality, and dispute resolution clauses
What is the difference between a Joint Venture and a partnership ?
A joint venture is typically made up of two or more individuals or businesses joining together to complete a project that is limited in scope and time. Once the project is completed, or by a fixed date in the future, the joint venture ends.
A partnership consists of two or more people who go into business together with a view to making a shared profit. A partnership is governed by a Partnership Agreement and unlike a joint venture, it typically continues for as long as the partners want to be in business.
What are the advantages and disadvantages of a joint venture ?
Collaborating with another business can offer the following benefits :
More financial or technical resources
Greater expertise and skills
Access to new markets and distribution channels
Partner on new and existing products/services
Flexibility and control over the terms of the relationship
Partnering with another business does offer its perks, but there are also some possible risks as well, including :
Imbalance in resources, expertise, or investment
Different management or leadership styles, or different workplace cultures
Disputes, if the scope of the venture is not framed correctly (as the partners in a joint venture are often competitors)