The Importance of a Joint Venture Agreement
Updated: Mar 3, 2021
Are you in a financial dispute with your Joint Venture (JV) partner? Do you feel like there is a lack of joint control or that resources are not distributed equally?
Forming a Joint Venture with your JV’s business partner can be a great way to access new markets, spread costs, expand your audience, share your expertise and revenue. However, partnering with another company can sometimes lead to conflict and disputes compromising your whole joint venture project. This might be due to lack of flexibility, great imbalance of expertise, assets, and investment.
As a result, having a JV Agreement can be a great way to prevent potential disputes with your JV partner.
What is a Joint Venture Agreement?
Is a Joint Venture Agreement legally binding?
What should be included in a Joint Venture Agreement?
1. What is a Joint Venture Agreement?
A JV Agreement is where two or more parties decide to engage in a business collaboration to deal with a particular project.
There are two main types of joint ventures:
A contractual joint venture is a contract between two parties who are looking to work together on a commercial project and pool their resources but do not want to create a separate legal entity such as a joint venture company or an LLP (e.g. two businesses collaborating to bid for a contract or carry out research and development). The collaboration is generally short term or for a defined period and is of restricted scope with a well-defined purpose;
A corporate joint venture is a contract between two parties looking to work together on a commercial project where they will both set up a separate company (“a joint venture company”) separate from their current operations, own shares in it, have representatives from each of the companies sitting on its board and or want their company to have limited liability for the debts and obligations of the joint venture. This type of joint venture is usually suitable if you will be collaborating on a longer-term project and/or your collaboration will be riskier and more complex and therefore justifies the time and effort of setting up a separate company.
2. Is a Joint Venture Agreement legally binding?
A JV Agreement is a legally binding contractual agreement between two or more parties, where each party can retain an independent identity. However, there are no formal legal requirements for entering into a JV Agreement. Thus, drafting one can be important to define the financial contributions of the parties, the ownership of assets, how management and control will be allocated, setting out the objectives of the JV, and to limit the areas of collaboration between the parties.
3. What should be included in a Joint Venture Agreement?
Once the parties have ensured that the company is properly formed by agreeing to the organisational structure of the JV, it is important to draft the JV Agreement to give the parties clarity as to their rights and obligations.
A JV Agreement should include:
Heads of Terms
Heads of Terms should be the drafted starting point on the JV Agreement. This will enable the parties to have a better understanding of the JV project as they create a guidance/ plan which sets out the primary matters of the JV project. They parties should include in the Heads of Terms the name of the company, the parties to the JV, the parties’ key obligations, details of the proposed agreement, the structure and nature of the JV, dispute resolution mechanisms and government law and jurisdiction of the Agreement.
Parties’ contributions include financial and non- financial. This will need to be included in the agreement to ensure that each party understands how investments will be valued and what each party has agreed in relation to commitments, rights and obligations to the joint venture project.
Profit sharing, risks and liability
The JV Agreement will need to set out how profit, risks and liability will be shared between the parties. The JV Agreement needs to state clearly how the profit will be distributed between the parties by taking in consideration parties’ ownership interests and/or if liability of some parties will be capped with other parties having unlimited liability.
Other clauses to include:
Dispute Resolution Mechanism;
Confidentiality and non-competition Clauses;
Termination of the Agreement
The Joint Venture Agreement needs to include provisions that deal with termination of the Joint Venture Agreement. The reasons for it may be due to insolvency, one of the parties committing a serious breach or both parties being unable to agree over a dispute.
How can Pure Business Law help?
We are specialist Joint Venture Agreement Solicitors based in Bedford and operating nationally. We draft Joint Venture Agreements, and we deal with the resolution of Joint Venture Agreement issues and disputes.
If you would like to discuss the preparation of a Joint Venture Agreement for your business, any issues or disputes concerning your Joint Venture Agreement or anything raised in this article please contact us and speak with one of our solicitors. Pure Business Law is regulated by the Solicitors Regulation Authority and is a licensed member of the Law Society of England & Wales.