Joint Venture Agreement
What is a Joint Venture Agreement?
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 purposes of achieving a mutual goal. The Joint Venture Agreement sets out the terms and obligations of the members and the joint venture.
Types of Joint Ventures
- Contractual: a contractual joint venture is where two or more parties agree to collaborate on a project, but do not set up a separate legal entity or pool the profits and 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 where the partners agree to share in the profits and losses from the mutual project and each party incurs unlimited liability 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 product development.
Why do Businesses Form Joint Ventures?
Two parties form a joint venture when they wish to join forces for a common purpose where they will each share in the risk and reward. It allows each party to grow without having to look for outside funding.
Other reasons businesses may enter into joint venture relationships are to gain access to wider markets, share resources, fund growth of another business, develop products, diversify, etc.
What is Included in a Joint Venture Agreement?
The following is included in a Joint Venture Agreement:
- Place of business
- The type of joint venture
- Venture details, such as its name, address, purpose, etc.
- Start and end date
- Venture members and their capital contributions
- Member duties and obligations
- Meeting and voting details
- Management, dissolution, and assignment of interest details
- Non-compete, confidentiality, and dispute resolution clauses
Joint Venture vs. 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. Its terms are defined under a Joint Venture Agreement. A partnership consists of two or more people who go into business together for the purposes of forming an ongoing business. A partnership is governed by a Partnership Agreement.
Joint Venture Advantages and Disadvantages
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
- Larger capacity
- 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
- Poor planning, unclear objectives, or decision making that could lead to misunderstandings