How Does A Joint Venture Agreement Work?

Contents

What Is A Joint Venture Agreement?

Joint Venture Agreements are used when two businesses work together towards the same strategic goals.

There are two main types of Joint Venture (JV) arrangements: unincorporated and incorporated.

Under an unincorporated JV, the parties deal with their relationship under a contract called a JV Agreement. Under an incorporated JV, a special purpose company is established and the parties deal with their relationship under a JV Shareholders Agreement

When Do I Need It?

If you are partnering with another business to achieve a particular goal, product or project, it’s often a good idea to have a Joint Venture Agreement in place. This type of arrangement is normally most appropriate where each party brings something different to the table. Although the project may be long-term, there is often a defined end and the parties want to remain separate entities outside the Joint Venture.

How Do I Use It?

Normally, a Joint Venture Agreement will need to be negotiated between the parties. It is important that everyone understands what their roles and responsibilities are under the agreement, and how the revenue will be distributed. Once you have come to an agreement, it is a good idea to have the contract formally drafted by a lawyer and signed by all parties involved. This ensures everyone is clear about terms of the Joint Venture Agreement, minimising the legal and commercial risks.

Joint Venture Agreement Example

Izzy is a clothing designer and Mitch runs an online clothing store. Izzy and Mitch realise they are both passionate about using organic clothing materials, and decide to launch a new organic product line on Mitch’s store. Izzy will make the clothing, and Mitch will sell it. They will split the profits of the new clothing line 70% to Izzy and 30% to Mitch since it is more costly for Izzy to source the material and make the clothing than it is for Mitch to market and sell it. Before they invest time and money in the new project, they take their idea to a lawyer who helps them draft an unincorporated Joint Venture Agreement encapsulating the terms they have agreed on.

What’s In A Joint Venture Agreement?

Here are the sorts of issues that are typically covered in a Joint Venture Agreement.

Roles and Responsibilities – What is each party contributing?
Management – How will the JV be managed between the parties?
Cost and Profit Share – How are profits and expenses shared between the parties?
Timeframe – How long will the JV last?
Intellectual Property – Normally parties want to protect and retain ownership of the IP they created prior to entering the JV arrangement. Who owns the IP created during the course of the arrangement? Is it shared between the parties?
Dispute Resolution – What happens if there is a dispute? Is there a process that needs to be followed before the dispute is taken to court (eg mediation)?
Liability – How is liability shared between the parties?
Termination – What happens if someone wants to get out of the JV arrangement?

Joint Venture Dissolution

A Joint Venture Agreement will usually also cover details around how the agreement can be terminated. This is known as a Joint Venture Dissolution Agreement.

A Joint Venture Dissolution Agreement sets out the terms under which parties will terminate the venture. So, it should cover the process of dissolution, what happens with intellectual property and assets and liabilities.

If you need help, Sprintlaw offers a Joint Venture Dissolution Agreement package, which includes phone consultations with a Sprintlaw lawyer who can advise you on the legal issues that may apply to you as well as a complimentary amendment to the first draft.

Need Help With A Joint Venture Agreement?

When you’re entering a Joint Venture, you’re normally taking on a lot of commercial and legal risk because you have to rely on another party. It’s a good idea to invest in a lawyer to assist you with putting together the Joint Venture Agreement, as this one-off cost can help prevent disputes, misunderstandings and save you from problems and headaches in the long run – as well as helping you get a good deal for your business.

At Sprintlaw, we have a team of experienced lawyers who can assist with your JV Agreement and other legals your business may need help with. Get in contact with one of our consultants for a no-obligation chat about how we can help.

Minna Boyle

Minna is the Head of People & Culture at Sprintlaw. After completing a law degree and working in a top-tier firm, Minna moved to NewLaw and now manages the people operations across Sprintlaw.