What Is A Joint Venture?
A joint venture is usually when two businesses use their different skill sets to work together on a project to make a profit. Contributing skill is not always the case, another party might also contribute money or property to the joint venture.
Joint ventures are often used when companies want to remain separate and continue working outside of the joint venture. Another feature of a joint venture is the temporary nature of their relationship, with a specific project the two businesses are working on rather than an ongoing business.
What Are The Different Types Of Joint Ventures?
A joint venture might occur through an agreement, for instance an unincorporated Joint Venture Agreement. Alternatively, a joint venture might incorporate and make a new special purpose company, where their relationship is governed by a Joint Venture Shareholders Agreement.
The danger of not incorporating, is businesses may legally be seen as being in a partnership structure. If the parties are seen as a partnership, they may carry liability of the other party, and be able to enter into binding contracts on the others behalf. It is therefore crucial that businesses seek legal advice on their structure when entering into a joint venture, whether incorporated or not.
When Are Joint Venture Agreements Used?
Joint ventures are often used in the mining and construction industry, as well as for other commercial trading.
What Is In A Joint Venture Agreement?
A joint venture agreement will usually cover the following;
- roles and responsibilities of each participant,
- how the joint venture agreement will be managed between participants
- how profits and costs are split up
- how long the joint venture agreement will last for
- whether any intellectual property made during the joint venture belongs to both or one of the parties
- dispute resolution
- how liability is shared
- the process if a participant wants to leave the joint venture
How Do You Terminate A Joint Venture Agreement?
A Joint Venture Dissolution Agreement sets out the terms under which a joint venture will be terminated. It should cover the process of dissolution, what happens with intellectual property, assets and liability.
Here at Sprintlaw, we’ve assisted many businesses choose the structure most suited to them, as well as drafted joint venture agreements, and joint venture shareholder agreements. We’ve written more about joint ventures here.
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