A Joint Venture Agreement (JVA), is an agreement put in place between two or more businesses at the outset of a business venture together. The purpose of the agreement is to set out each party’s obligations and duties during the venture, this can either be a one-off specific project or an ongoing one. A joint venture allows both businesses to keep their own corporate identities and incorporate a separate legal entity for the venture, though if the parties wish, they can opt to a purely contractual joint venture. Either way, before kicking off the process, there are various things that the contracting parties should consider:
- Purpose of the agreement and scope of the work
An agreement should set out the objectives of the joint venture, how long it is expected to last and which tasks and responsibilities fall to each party.
- Funding
A joint venture often means both parties will share the costs. The contracting businesses should discuss what costs are likely to be incurred and who will be responsible for paying for any equipment, materials or other fees. Each company is likely to own different assets as part of the joint venture and documenting who owns what will help avoid conflict when the venture comes to an end.
- Profits
It should be decided early on whether profits will be split equally or if each company receives profits for specific pieces of work.
- Confidentiality
In setting up and running a joint venture, it is likely that the companies will need to disclose confidential information about their individual businesses to each other. Setting out any confidentiality provisions will minimise the risk of confidential information being used by the other party if things go wrong or once the joint venture comes to an end.
What are the benefits of joint venture agreements?
- Teaming up with another business can mean access to better resources
- The risk and cost are split between the parties to the agreement
- New projects can be funded by both parties which may prevent the need to find investors
- If the venture is successful, the contracting parties share profits
Are there any negatives?
- It may restrict the focus on a party’s individual business if they’re focussing on the joint venture
- Although parties may split profits, there is likely to be varying levels of involvement which may mean that one party has less control over the venture
- Disputes may occur if the agreement isn’t clear from the outset or if parties have different ways of doing things.
In conclusion, a well-structured joint venture agreement serves as the cornerstone for successful collaborations between businesses. The intricacies involved in such agreements necessitate careful consideration of legal as well as financial and operational aspects.
If you have any questions, please feel free to speak to a member of our legal team for more information.
Tend Legal, London