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 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.
Why do businesses form joint ventures?
Two or more businesses 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 business to grow without having to look for outside funding.
Other reasons businesses may enter into a joint venture relationship could be to gain access to wider markets, share resources, fund the growth of another business, develop products, or diversify.
What is included in a Joint Venture Agreement?
The following is included in a Joint Venture Agreement:
- Business location
- The type of joint venture
- Venture details, such as its name, address, purpose, etc.
- Start and end date of the joint venture
- 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
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
- Larger capacity
- Partner on new and existing products/services
- Diversification
- 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)
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