Agreeing to a joint venture with another business can make real sense in the commercial world
This enables both parties to add a new dimension to their offering and complement each others’ businesses. Joint ventures and joint venture agreements are not always straight forward and require careful planning, consideration and openness in order for them to be successful.
Successful joint ventures have led to some great achievements for all parties involved and can help introduce products into new markets and distribution channels that may not have been open or extremely difficult for one party to achieve on their own. Joint venture agreements will also enable each party to share the risk as well as the liabilities and rewards, which can be appealing if the parties are not accustomed to the particular product or service markets the new venture takes them in to.
Something to bear in mind when choosing another business to go into a joint venture with is that, as well as working through and setting up a joint venture agreement, you need to understand the culture of the business you will be partnering. This can be a big factor in the success of the venture, should it get off the ground, with all parties putting in a concerted effort only to find the culture gap between the businesses is too difficult to deal with. This is where pre-planning and talks may help to avoid, or at least see, any communication or expectation obstacles that may lie in the road ahead. Each business’s requirements and expectations must be fully understood by each party otherwise this can put a halt to proceedings as well as being a huge waste of resources and capital.
A good corporate solicitor will advise on legal issues facing your venture and will make sure that all possibilities and eventualities are agreed and drafted into a joint venture agreement so that each party knows what is expected of them, the operational control they will have and the rewards they will receive. There are different types of joint ventures and your legal advisor will set up the correct type, which will usually depend upon; the nature of the businesses, the proposed running plans for the new venture, the mechanism for profit sharing and also tax implications.
A typical joint venture agreement will cover all of the areas listed below as well as other, perhaps more bespoke clauses, in order to fully satisfy what the parties set out to achieve.
- The structure of the joint venture will be documented.
- Each party will commit to their financial contributions to the venture.
- The commitment of the parties with regards to assets and employees that will be utilised by the new venture.
- Any intellectual property that is created via the joint venture and its ownership.
- The business will require management control and who, and to what extent, are the parties responsible for this.
- The business will attain liabilities, losses and also profits. The distribution of these will be agreed and documented.
- Although no-one sets out to fail or sets out with a negative attitude, sometimes a dispute is inevitable and as such it is vital that an agreed process for dispute resolution is agreed at this early stage, often involving a third party that each side would be happy is impartial.
- This can sometimes cause a lot of negotiation, but the exit strategy needs to be agreed and documented.