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Joint Venture Agreements
Joint Venture Agreement is a contract between two parties used to accomplish a specific goal. A joint venture agreement may be the ideal arrangement for your business entity if you need to accomplish a short-term project.
What is a Joint Venture (JV)
A joint venture, or JV, is a type of business arrangement where two or more parties agree to pool all of their resources to achieve a specific goal. The goal can be a task, a new project, or any form of business activity. All participants in a joint venture are responsible for all the costs, profits, and losses associated with it. The venture itself, however, is completely separate from the party’s other businesses.
While a joint venture is similar to a partnership, it holds no legal standing. Corporations, partnerships, LLCs, and other types of businesses can all form joint ventures. While these arrangements are generally used for research purposes or production, they can also be used for other purposes.
A joint venture can be used to combine both large and small companies to work on bigger projects than they would be able to handle individually.
While joint ventures are similar to a partnership, the primary difference is that a JV is used for one single business activity for only a specified period. A partnership is an ongoing long-term relationship.
The joint venture agreement is your most important document because it will state all of your rights and obligations, along with those of the other party.
Types of Joint Ventures Law
- One way to get into a joint venture is to agree to work with another business in a specific and limited way. For instance, if a business has a new product that they wish to sell but needs a larger distribution network, the two could work together on a contract on making that happen.
- You could also opt for a separate joint venture. This could be a new company to handle a certain contract. This is a very flexible option. All the partners can have shares of the business and agree on the management aspects of it.
- Other options could also work in different circumstances. You could choose to form a business partnership or even merge two of your businesses.
To decide which option is best for you, be sure to consider how much you want to be involved, if at all, in the management of it. Also, consider what will happen if the venture does not work out and the amount of risk you are willing to take.
What Is a Joint Venture Agreement?
Also referred to as a co-venture agreement, a joint venture agreement is a temporary business contract between two or more parties to help them achieve a common goal. The joint venture agreement defines all of the obligations and terms for the members involved in the agreement. There are two main types of joint ventures:
Contractual joint ventures, which is when two entities wish to team up on a specific project but don’t want to form a separate legal entity to do so. Instead, each entity will keep its records of profits and losses.
General partnerships, which is when two entities decide to share their profits and losses from a specific project. Each partner in the agreement will have unlimited liability when it comes to the obligations of the agreement. Usually, this type of agreement is reserved for real estate endeavours rather than business ventures.
Why Create a Joint Venture Agreement?
There are a few reasons why two parties might decide on a joint venture agreement:
- It allows them to share the reward and risk, which is ideal for minimizing losses.
- It helps them each grow as a separate company without seeking capital from other sources.
- It gives them access to wider markets.
- It permits them to share resources.
- It allows them to develop new products.
- It provides them with greater skills and expertise.
- It helps them diversify their interests and products.
- It offers more flexible control over a relationship as opposed to stricter agreements
Disadvantages to a Joint Venture Agreement
While a joint venture agreement is mostly beneficial, it does have some downsides:
- It exposes the company to different leadership styles or workplace cultures, which could cause a crash.
- It creates an imbalance of investments, expertise, or resources between the two entities.
- It could cause a failure if there is poor planning or decision making between the two entities.
What Is Included in a Joint Venture Agreement?
There are a few specific details you’ll need to include in any joint venture agreement you create:
- The place of business.
- The type of joint venture (contractual or partnership).
- Specific details of the venture, including its purpose, address, and name.
- The date the venture begins and ends.
- The members of the venture and any contributions they’re making.
- The obligations and duties of each member.
- The details of any votes or meetings.
- Information on how you will manage, dissolve, and assign an interest in the venture.
- Any relevant clauses, such as dispute resolution, confidentiality, and non-compete clauses.
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