A contractual agreement that joins together two or more individuals for the purposes of managing a particular business undertaking is referred to as a joint venture. Both parties in this collaboration agree to share in the losses as well as the profits of this enterprise. Whereas a partnership refers to an ongoing business relationship over the long term, a joint venture partnership is for only one business transaction. This means that the contracting parties remain distinct and separate legal entities and would continue to carry on their companies as separate operations.
Joint ventures may be an effective way to enter into an agreement outlining clear goals and responsibilities for both parties. This is essential for avoiding conflicts later on down the road. There are certain liabilities and rights associated with any joint venture agreement. Some of the critical matters that need to be incorporated into a joint venture agreement with the help of a knowledgeable attorney include:
- Participation percentages and losses and profits
- Performance including obligations of both parties
- Timing for expenses, payments, invoices and signing authorities
- Determining whether or not the joint venture will have its own employees
- How the decisions of the joint venture implemented and who maintains supervision over the work
- How working capital will be provided?
- How insurance will be obtained?
- The storage or knowledge of confidential information after the joint venture is terminated
- Who maintains responsibility for the books and the financial statements
- What events trigger the termination of the joint venture?
- Whether disputes will be litigated or arbitrated
Consulting with a knowledgeable attorney is strongly recommended for anyone considering participating in a joint venture whether it is to craft a new agreement or to review a previously suggested one. Joint ventures may be a small component of your overall business since they are short term, but you still need appropriate planning to minimize the potential for future conflicts.