Five things to Consider Including in a Business Joint Venture Agreement
A joint venture agreement is a contract between two parties to accomplish a specific goal. Often, a joint venture agreement is established to accomplish a short term goal and is utilized as the agreement allows for a pooling of resources between the two parties, making certain projects easier to achieve. The “venture” is separate from each individual party’s normal business, but all parties involved are responsible for the shared cost, profit, or losses, that come with the venture.
If you’re still a little unsure about what exactly a joint venture is, there are tons of well-known examples. Joint venture agreements are entered into relatively often, as they provide the option for collaboration that is oftentimes necessary to further each individual entity’s business. Google, for example, entered into a joint venture agreement with Nasa, which resulted in the creation of Google Earth. BMW also entered into an agreement with Toyota to research hydrogen fuel, electric/environmentally friendly vehicles, and ultra-lightweight materials. These are only two examples; there are plenty more. At its most pure form, a business joint venture is a legal collaboration between two established companies that allows both companies to retain their independence outside of that one project.
The benefits of a successful joint venture can be huge; they can expose your company to new markets, while also increasing your market value. And this comes with the added benefit of total independence outside of the venture. You do not have to sacrifice your business or your ownership of your business in order to reach a higher tier of performance.
After you decide you wish to proceed with a joint venture and you have identified a partner who is willing to work with you, the next step in the journey is to agree on all the terms and then draft up a joint venture agreement. For this, however, it is usually advisable to get in touch with a small business lawyer either to draft the agreement or to review the one you have drafted yourself. Within that, there are several things you absolutely need to explicitly cover. Here are the top five.
The first and most general, yet vital, aspect of the agreement is an overview of the terms of the agreement, establishing who is responsible for what, who will be contributing what, and who owns what.
Pertaining to the terms of the agreement, it is important to set up explicit start and end dates, when necessary. Deadlines must be established and outlined so that you have legal assurance they will be met. If the project has the potential to be more long term, include this in the general terms.
As to the ownership, contributions, and responsibilities, it is vital to the success of your agreement to lay out in detail who will be bringing what to the table. Will the work be split in half? Will one partner be contributing more in the way of resources, whether monetary or otherwise? To avoid future arguments and possible disintegration of the arrangement, it is important that both parties know to what level they will be expected to contribute.
Five Considerations of a Joint Venture Agreement
Other responsibilities, even if they seem like trivial things, are also important to list out. In any partnership, it is often a pileup of the little things that leads to massive problems; keep it organized and predetermined as to who is responsible for what. Along with a layout of workload contribution, you must also have a detailed percentage of ownership of the result of your venture. Will each partner have equal ownership over the product? Will ownership vary depending on the workload? These questions are important to answer to avoid potential legal issues later on.
The second thing to consider involves branding and marketing after the conclusion of the project. In other words, can one company individually advertise themselves using the product that was created by both companies during the joint venture? Can this product be sold independently by each party? Will it be branded by one or both parties? Answering these questions before beginning your agreement will avoid a lot of stress after the project is all done.
The third thing to think about involves money. Will the cost of the venture be split evenly by both parties? What aspects of the venture will be considered expenses? When will each party begin to receive their share of the revenue? Will expenses of the venture be deducted before each party gets paid? How much is each party getting paid? Use as much detail as possible in this area, as financial issues can cause the most strain in any partnership, and are the area that is most rife with the possibility of legal action.
The fourth thing to consider involves emergency or contingency planning; what happens if one party cannot or will not perform their duties, as detailed by the terms of the agreement? Will this inability to perform be considered a ‘force majeure’ or will it be seen as a breach of contract? This could refer to a variety of situations; one party could fall ill, or have some sort of family emergency, one party could take on another project and simply begin to contribute less to your agreement, etc. Regardless of the reason, it is important to layout the legal consequences of abruptly ending the partnership, or simply not contributing what you agreed to contribute. This should help keep your company, your venture, and your investment of time and money into the venture, protected.
The last thing to consider is what to do if the worst happens; if neither party can come to a compromise following a disagreement. There are a variety of ways to handle this, including the consultation of a neutral party, or simply going to court, where a judge will examine the situation and compare it to the terms established in the agreement. It is important to plan for this eventuality, as you stand to lose a lot if you are not properly prepared.
Joint venture agreements can have both benefits and drawbacks for your business, you just have to make sure that you are insulated as much as possible from the potential disadvantages while taking advantage of the positives.Kmspico download
