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As a business owner, you may be looking to engage in new commercial projects to grow your business. In this case, a joint venture may be an interesting opportunity to consider, as it allows you to collaborate with another business to increase profits. However, before beginning the venture process, it is important to clarify each party’s roles and responsibilities via a joint venture agreement. Without a properly drafted agreement, you may face disputes and legal issues with the other party in the future. This article explores how joint ventures are structured and the key terms to include within a joint venture agreement.
Joint Ventures
Joint ventures are where two or more businesses work together on a commercial project with the goal of making a profit. By pooling resources and business knowledge, a joint venture can help your company to:
- expand into new geographical areas/international markets;
- access new technology;
- gain greater distribution channels:
- increase manufacturing capacity; and
- decrease the financial risks of a new project.
A joint venture is an ideal way to gain greater resources for a project your business does not currently have. For example, you may choose to partner with a business that already has the distribution capacity in a new country you want to expand into.
What is a Joint Venture Agreement?
A joint venture agreement (JV agreement) is a contractual arrangement where involved businesses agree to specific responsibilities. A joint venture agreement will set out all relevant terms you and your potential partners wish to include, such as the length of the project.
The transparency and agreement of all terms create a more secure foundation for your project, especially if you are entering into a multi-party joint venture.
Continue reading this article below the formKey Terms to Include
There are several key terms to include in your JV agreement, including:
- the name of any joint venture company or partnership, if applicable;
- the nature of the joint venture;
- details of each party to the JV agreement;
- responsibilities of each party to the agreement;
- how a party can terminate the agreement;
- confidentiality and non-compete clauses;
- how to enter new markets;
- how profit is to be divided; and
- funding obligations/capital contributions from each party.
Key Takeaways
A joint venture can be an exciting opportunity to expand your business and innovate. In particular, JVs encourage you to work with other businesses to create a new product or specific project. However, to ensure that you get the most out of the JV and protect your interests, you must have a well-drafted joint venture agreement. It should set out the roles and responsibilities of each party and the nature of the joint venture. Other key terms include:
- how a party can terminate the agreement;
- confidentiality and non-compete clauses;
- how to enter new markets;
- how profit is to be divided; and
- funding obligations/capital contributions from each party.
If you need help or advice around structuring your joint venture agreement, our experienced business lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
A joint venture describes when two or more businesses collaborate to carry out a new commercial project with the aim of making a profit.
A joint venture agreement is a contractual arrangement where involved businesses agree to specific responsibilities. The agreement will set out all relevant terms you and your potential partners wish to include, such as the length of the project.
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