Key Considerations For Joint Venture Agreements - Diamond and Diamond Lawyers
  • Friday, 17 July 2020

Key Considerations For Joint Venture Agreements

Whenever you enter into a financial or business agreement with someone it is extremely important to outline the terms. Doing so in advance will avoid misunderstandings and make it far less likely you will have problems in the future. Far too many people fail to do this and end up enduring lengthy and expensive legal wrangles, as a result.

This is a shame because it is not difficult to have a Joint Venture Agreement drawn up. Read on to find out what they are, how they should be drawn up and how you can benefit from using them.

Basics of Joint Venture Agreements

First the definition. A Joint Venture Agreement is any contractual agreement made between two or more parties to manage a particular business venture, undertaking, transaction or project.

Difference Between Joint Venture and Partnership

It is important to understand that a joint venture agreement is not the same as a business partnership. Joint venture agreements are set up to cover a particular business transaction only.

With joint ventures, the contracting parties are treated as separate legal entities. Each of them continues with their respective business operations. They, therefore, each retain ownership of their property.

Whereas, with a partnership, the two parties agree to share in the profits generated, as well as bear the burden of any losses. Usually, this partnership continues indefinitely and covers all and any business-related work they do together. It, therefore, covers multiple projects, ventures, and undertakings.

Purpose of Joint Venture Agreements

The main purposes of Joint Venture Agreements are to facilitate:

  • Working with other business entities to develop a new product
  • Joining forces with others to improve business processes/production
  • Teaming up with others to expand one’s business
  • Collaborating with others to penetrate other markets

Key Considerations in Joint Venture Agreements

Typically, a joint venture agreement will include the following details:

  • The objectives of the project or venture
  • The organization and structure of the joint venture
  • Define management and levels of control – who is responsible for what and who needs to be consulted or notified before action is taken. Including restrictions of activities.
  • How long the joint venture is expected to be in existence
  • The scope of the venture or project

The contributions each contracting party is expected to make are also listed within the document. That includes:

  • Financial contributions
  • Resources contributions
  • Employee, labour, and expertise contributions

Joint venture agreements must also outline how finances will be handled. That means that the following needs to be included:

  • Distribution of earnings and expenses
  • Terms for any revenue generated by the joint venture during the initial timeframe and in the future
  • Debts and guarantees
  • Define who is responsible for the books, financial statements, and meeting CRA requirements
  • Determine who owns any intellectual property

Also, the following needs to be outlined in the agreement:

  • Procedures for resolving disputes
  • Other conditions that relate to intellectual property rights
  • Terms of confidentiality
  • A non-disclosure agreement
  • Termination clauses
  • An exit strategy for those who may wish to avail themselves of it
  • Buyout terms, if appropriate
  • How the relevant insurances will be put in place, maintained, and paid for

Joint venture agreements can sometimes be complex. Make sure you understand all facets of the deal by talking to a lawyer first.

Consult with a Diamond & Diamond Lawyer to Draft a Joint Venture Agreement

Over the decades, Diamond & Diamond lawyers have created hundreds of Joint Venture Agreements for all kinds of situations. No project, venture, undertaking, or transaction is too big or small for us to handle. It does not matter what sector you are involved in, we can:

  • Draft a new joint venture agreement
  • Review a previously drafted joint venture agreement

Our team is also able to provide legal advice that can prevent issues in the future that relate to:

  • Liability
  • Taxation
  • Ownership

As well as answer any regulatory concerns, including those that are related to:

  • Industry regulations
  • Labour laws
  • Consumer law

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PRO TIP:

“Joint venture agreements are flexible. They can be made between corporations, between a corporation and a person, or between two persons.”

 

FAQs on Key Considerations for Joint Venture Agreements

Are joint venture agreements required by law in Ontario?

Joint venture agreements are not required by law in Ontario. However, it is wise to draw one up. When you do, all parties will be able to clearly see what their obligations are. As well as understand how profits or any losses will be shared. These agreements can be complex and are legally binding, so it is wise to use an experienced lawyer to draw one up.

I’m collaborating with a family member for a business undertaking, do I still need a joint venture agreement?

It is wise to have a joint venture agreement (JVA) drawn up even if you are collaborating with family members. Misunderstandings are just as likely to occur in that situation as they are if you were working with people you do not know. Also, anyone´s circumstances can change leaving them unable to continue as planned. A decent JVA will cover most circumstances and make it clear what is to be done, thus avoiding a protracted argument with family members.

What are my rights if my business partner is charged with a crime while doing business for our joint venture?

The rights you have if a business partner is charged with a crime while part of a joint venture will vary greatly. It depends on the type of offence, whether it involves stealing from the venture and what any agreement you drew up says about what happens in any of these situations. That is why the wisest course of action is to consult a lawyer that has relevant experience.

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