What Is a Joint Venture Agreement?
Sometimes, you need outside help to achieve your business goals. A joint venture is a purpose-driven agreement between two or more business entities that allows companies to launch objectives beyond their own abilities, such as entering foreign markets or expanding their business offerings.
While joint ventures are most common among large corporations, they can also benefit small businesses. Consulting a business contract lawyer can help you navigate the complexities of joint venture agreements.
How Joint Venture Agreements Work
Companies enter into joint ventures to gain access to resources, expertise, or distribution channels otherwise unavailable to them. This arrangement can open up new opportunities for business growth and improve your standing among your competition.
Although joint ventures and business partnerships are similar, they are different concepts — joint ventures are temporary, and business partnerships are long-term. Further, joint ventures are similar to strategic alliances. However, instead of two companies working side by side, a joint venture creates a new legal entity where all parties share ownership.
Key Joint Venture Characteristics
All joint ventures share the following characteristics:
- Legally independent parties: Joint ventures combine two or more legally independent business entities.
- Shared goal: A joint venture must be mutually beneficial for all involved parties. Benefits can include access to new markets, resources, or purchasing power.
- Pooled resources and responsibilities: All parties must contribute resources and share ownership and implementation of the project. These resources can include cash, property, expertise, or assets. Additionally, all parties agree on how they will divide profits, losses, and control of the venture.
- Temporary: The biggest difference between a joint venture and a partnership is its duration. A joint venture is only active for a specified period of time. Usually, it ends either upon completion of the project or on a specific end date.
Joint Venture Examples
Joint ventures can benefit companies in any industry, whether you operate in construction, logistics, or even telecommunications. As a general example, several real estate developers might form a joint venture to collaborate on a new housing complex. One developer could contribute the majority of the needed capital while another could provide architects with experience in the region.
A more specific example is the TMAP Mobility joint venture between SK Telecom and Uber. American ride-booking app Uber invested $100 million into TMAP Mobility, a subsidiary providing subscription-based transportation services to people living in South Korea. TMAP Mobility, which operates using SK Telecom’s TMAP application, has since expanded its offerings to provide electric vehicle charging, designated driver, and freight transportation services.
When You Need a Joint Venture Attorney
Careful attention to detail and an understanding of business contract law are essential to navigating joint venture agreements. You need to be proactive about protecting your business’s interests, which is why you must prepare for the worst-case scenario.
Even if you have prior experience, seeking legal advice can help you form a robust agreement with the proper provisions. This investment can save your business thousands of dollars and countless hours of frustration if a problem arises.
Creating the Contract
Working with a joint venture lawyer can help you navigate the technicalities and pitfalls of drafting a joint venture contract, such as:
- Roles and responsibilities: A joint venture that perfectly splits contributions between partners is rarely possible. Each party brings something different to the venture, so some parties might contribute more than others.
- Decision-making authority: Your agreement needs to set clear ground rules for each party’s decision-making authority. It should also define what decisions need consulting with your partners.
- Protection: Many companies do a poor job of managing their own resources, which is why it’s best to prepare for any issues that could arise. A lawyer can ensure your joint venture contract includes the proper provisions to keep your business safe from unnecessary losses.
Getting the details right the first time is essential for any successful legal arrangement. Bringing a qualified lawyer on can ensure everything is properly aligned before your joint venture becomes active.
Terminating a Joint Venture
All joint venture agreements should spell out exactly how to end the relationship. Often, the contract specifies an end date or identifies a triggering event for the wind-down process.
Your agreement should also clearly explain what will happen to the remaining liabilities or assets. Most of the time, joint venture exit strategies take one of the following forms:
- Selling the joint venture business: While a sale is often the quickest and easiest exit strategy, it can be difficult to find the right buyer within a reasonable amount of time.
- Operations spinoff: You sell joint venture shares to create a new, independent company. With careful planning, this arrangement can allow business continuity well into the future.
- Employee ownership buyout: Employees of the joint venture buy the company, which can boost productivity and profit. Most of the time, though, this option is only available to large joint ventures.
An attorney can help you draft an agreement that allows you to safely exit the joint venture and maximize your benefits.
Joint Venture Failure
In some cases, you may need to prematurely terminate your joint venture. Conditions for a failed joint venture usually include default or deadlock. You can protect yourself from these situations by including the following provisions:
- Default: A default provision defines what happens when one partner fails to hold up their end of the bargain. Often, this provision enables the non-defaulting party to leave the venture.
- Deadlock: When both parties fail to agree on critical decisions, a deadlock provision provides for the transfer of disputes to either nominated officials from each party or an independent expert.
Your lawyer can help you ensure these provisions are solid enough to protect your business’s interests if you need to bail out of your joint venture.
Contact a Joint Venture Attorney at Calabrese Law Associates
If you are forming a joint venture and need legal advice, Calabrese Law Associates is here to help. Our attorneys work with real estate and construction companies in the Greater Boston Area to create joint venture agreements that serve and protect all parties involved.
Contact us online or call us at 617-340-6623 to speak with a joint venture attorney today.
This publication and its contents are not to be construed as legal advice nor a recommendation to you as to how to proceed. Please consult with a local licensed attorney directly before taking any action that could have legal consequences. This publication and its content do not create an attorney-client relationship and are being provided for general informational purposes only.
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