Joint Venture Agreements

A joint venture is a business organization between two separate individuals or companies that agree to work together on a single endeavour or project. Joint ventures exist for a limited and defined purpose.

They are different from partnerships which involve partners carrying on business in common with a view of profit. Unlike the case for partnerships, joint ventures only last for the duration of a specific project. And unlike corporations, they are not a separate legal entity.

Joint venturers share responsibilities, decision-making, and financial contributions. This collaborative approach allows them to access new markets and benefit from cutting-edge technologies, leading to mutual growth and success.

A Joint Venture Agreement (also known as a JV Agreement) is a written agreement that governs the parties in a joint venture. It establishes the purpose of the venture, the duties and obligations of each party, as well as details surrounding business management and day-to-day operations. Importantly, it sets out how the profits and losses will be shared amongst the parties.

Clarity is crucial when two parties agree to work together. Confusion and uncertainty can cripple a business endeavour. This is why having a Joint Venture Agreement in place is so important. Setting out each party’s rights, obligations, and expectations from the outset can prevent major headaches down the road.

A well-drafted Joint Venture Agreement also protects each party from liability and intellectual property infringement. For example, what happens if a party publicly discloses the other party’s trade secrets? What happens if a party is sued in court? Will they be able to claim any remedies from the other party? These are some issues that a Joint Venture Agreement can iron out.

Understandably, the cost of having a lawyer-drafted Joint Venture Agreement is likely to be significantly less than the cost of going to court if a legal dispute arises that could have been prevented by a well-drafted agreement.

Here are some of the key considerations for joint ventures that should be included:

• Purpose of the Joint Venture: Each joint venture has a different purpose and lasts for a different amount of time. Be clear about the purpose of your particular joint venture.
  
  
• Management and Decision-Making Structure: How will the business of the joint venture be conducted? Who is responsible for making the key decisions regarding the daily operation? What is the decision-making process? Will certain decisions require a unanimous vote?
  
  
• Resources to be Shared: Each party contributes to the joint venture in a variety of different ways (e.g., capital contribution, assets, labour, or expertise.) Be clear about what is expected from each party.
  
  
• Profit and Loss Allocation: A well-drafted Joint Venture Agreement should clearly define the methodology used to calculate and distribute net profits and losses among the parties. It should specify the formula used for profit distribution as well as the frequency of such distributions. This ensures transparency and fairness. Note that joint ventures do not always share profits equally.
  
  
• Rights and Obligations: There should be clauses that outline the specific tasks, contributions, and responsibilities that each party is expected to fulfil. It should clearly detail the scope of work, deadlines, and expectations so that all parties are aware of their roles and responsibilities.
  
  
• Termination: This clause specifies the conditions under which the Joint Venture Agreement can be terminated, such as breach of contract, mutual agreement, or failure to meet certain performance criteria.
  
  
• Dispute Resolution: This clause sets out a structured framework for handling conflicts. It may outline alternative dispute resolution methods such as mediation or arbitration.
  
  
• Confidentiality: This clause ensures that proprietary information, trade secrets, and other confidential information shared between the parties are not disclosed to any unauthorized parties.
  
  
• Intellectual Property: This clause addresses ownership rights. It protects and enforces the intellectual property rights of each party.
  
  
• Indemnities and Liabilities: This clause establishes the obligations of each party to indemnify and hold harmless the other parties from any claims, damages, or losses arising from their actions or omissions.

Ensure that the agreement is uniquely tailored to the circumstances of your business relationship. As this agreement and each of its provisions are so complex, it is important to obtain professional legal advice. A Joint Venture Agreement template would likely be inadequate.

Joint Venture Agreements are very similar to Profit Share Agreements. While they both involve two or more parties working together and sharing profits, the main difference is that Joint Venture Agreements are usually more comprehensive. Joint ventures usually require more clarity regarding business management, operations, and the process for dissolving the joint venture.

Note that Joint Venture Agreements are also different from Partnership Agreements. It is best to consult a lawyer to determine which type of agreement will work best for your situation.

A Joint Venture Agreement is legally enforceable as long as it meets all of the elements of a valid contract. Therefore, if a party breaches the terms of the agreement, then the other party may seek legal remedies such as specific performance, damages, or injunctive relief to enforce the agreement and protect their interests.

Joint ventures can be very complex. Therefore, when it comes to these agreements, it is best to get an experienced business lawyer involved when first considering the potential joint venture. The right lawyer will ensure that the agreement is legally sound and protective of your specific needs.

We may recommend clauses that will protect you and your business in ways that you would not have otherwise thought of. Or at least review it for you to help you truly understand what you are getting into. Set up a free consultation to discuss your business objectives today.